The meaning of the phrase financial literacy is quite simple. It involves the knowledge of financial skills. So, for example, this could entail developing a budget, creating a retirement plan, investing in various stocks and bonds, and knowing how credit scores work—these are all part of being financially literate.
Increasingly, it is becoming essential for individuals to have a certain degree of financial literacy. In the past, certain things were managed by employers, like retirement plans. This is not necessarily the case anymore. More and more individuals are managing their retirement accounts and investing independently. Thus, financial literacy is becoming incredibly important so people can safeguard their money and optimize their funds for the future.
Key Components of Financial Literacy
Having a certain amount of financial literacy makes it so that you can tackle major financial decisions more confidently than if you were not financially literate. Without financial literacy, you stand a chance of making some mistakes, potentially big mistakes. And in the long run, these mistakes can devastate your financial future.
Creating a budget
This is perhaps one of the most important things you can do regarding your financial literacy. Tracking your expenses in conjunction with your incoming money enables you to create a more realistic financial picture. This economic picture should then guide you forward so that you don’t overspend and consequently get into trouble.
Planning for your retirement
This is also a key component of financial literacy. The earlier you start to save, the smarter you invest, and the more money you will have to retire at a reasonable age. The last thing you want is to be stressing about where the money will come from in your later years.
Managing personal debt
Everybody in the United States has some form of debt, be it credit card debt, loans, or both. Managing debt is about understanding interest rates and loan terms. And it is also about making timely payments so that you don’t get behind and fall into a hole from which you cannot climb out.
Keeping track of your credit score
Hand-in-hand with managing debt is keeping track of your credit score. Credit scores can determine a lot in our current society. Your ability to purchase a home, a car, or anything major, can often hinge on a credit score. Not enough Americans check their credit scores with any regularity. Having financial literacy means not only knowing where your credit score stands but understanding how to navigate that score and use it to your advantage.
Are You Financially Literate?
Below are some questions you should be asking yourself to determine your level of financial literacy. Is this something that you need to work on? If so, there are ways that you can improve your financial literacy. Begin by asking yourself the following:
1. What does your current budget look like? If you don’t have a budget, then that is where you should begin.
2. Do you have a plan for paying off your current debts?
3. What does your retirement account look like? Do you have a plan moving forward to invest more into your retirement?
4. Do you and your family have an emergency fund for needs above and beyond your everyday living expenses?
5. Where does your credit score stand? Do you know the steps you might take to improve that score?
These questions are just the beginning. You might jot down the answers. Take a look at where you can improve upon your knowledge. Figure out how you can finetune your financial literacy regarding your economic welfare.
First Union Lending is Here to Help
We want to see small businesses in the United States thrive and ultimately grow. We offer short-term loans, lines of credit, and merchant cash advances, among other financing solutions for those with less than perfect credit scores. Do you need additional working capital for your small business? Call today, and let’s get started.