How Financial Literacy Affects Your Income, Debt and Wealth Levels
Money management is a personal skill that is useful throughout a person’s life. However, it is not something that everybody easily learns. Why? Because it can be daunting with all the due dates, bills, charges, invoices, investments, etc.
According to a survey by Household, Income and Labour Dynamics in Australia (HILDA), only 25% of people under 25 years old have a good understanding of inflation, interest, and diversified investments.
Sadly, personal money management isn’t formally taught in schools. You just pick up the lessons through the years and it requires financial literacy and personal responsibility to be able to meet your financial goals.
Karina Wolfin, the consultant for home appliance rentals at DAR, believes that financial literacy is key to a comfortable life for most people. “Financial literacy is what makes the difference between a person earning six digits to someone earning a few hundred a months. No matter how much you earn, you’ll still struggle financially if you don’t know how to handle money correctly. It’s not a promise that you will be rich, but it will help you become more comfortable.”
Let’s explore further how financial literacy affects our income, debt, and wealth levels:
Teaches you how to budget:
To fulfil all financial responsibilities, get rid of debt, and accumulate money, it’s crucial to learn to budget. It all begins with knowing how much you’re earning and how to allocate it effectively.
Once you set a budget, you can track all your expenses and re-evaluate your spending plan from time and again. There are different budget methods; choose what you’re most comfortable with.
Helps you manage debt:
A study showed that 37% of Australians are struggling to get rid of debts, and 50% of millennials state that debt is a personal problem for them.
Australian household debt has consistently increased over the past 30 years, as more of us aspire to continue to depend on loans and credit cards.
If you are financially literate, you’ll be more careful with debts. As much as possible, you’d avoid borrowing money from an institution or an individual. However, many of us will have to loan for long-term purposes, such as house and education. Financially literacy will teach you how to find the lowest charges and best deals.
Encourages you to create an emergency fund:
One of the effective ways to prevent debt accumulation is to prepare an emergency fund. This type of fund should only be touched should unexpected expenses come up. Ideally, an emergency fund should cover at least 3 to 6 months’ worth of expenses—and should be replenished as soon as possible.
Helps you see the need for a retirement plan:
While building a safety net, a retirement fund should be part of your long-term goal. A financially literate person knows how much he/she has to save to live comfortably during retirement years.
Do you need to take a loan for a house, a business, or any other personal endeavour?
Aussem Mortgage Solutions offers service-based services that can help you achieve financial freedom. Contact us now to discuss your needs.