We released the first of MoneyLend.net’s series of educational infographics today, with our new guide to financial literacy. We are constantly seeing “finance gurus” that charge big money for common-sense (and sometimes not so common-sense) advice, and there is a misconception out there that you have to take expensive courses, buy a fifty dollar book, or have an Ivy League degree to be financially literate. That couldn’t be further from the truth.
In fact, anybody – regardless of education, financial status, credit rating, or whether you’ve bought into the latest “money makeover”, “financial fast”, or prosperity gospel – can achieve financial literacy. Shockingly, only about a third of Americans are considered financially literate according to the latest survey.
Buy the books and sign up for the courses if you want, but it really all comes down to a few basic steps you can do on your own. Our new infographic outlines eight steps to get you started on the right path:
Keep a money diary. Get a pocket-sized notebook, and for three months, write down every cent you spend, no matter how insignificant. At the end of each month, you may be surprised how much you’re spending on coffee, movie rentals and other small things you typically don’t pay attention to. Use this information to gain more control over your spending, and set a realistic budget.
Don’t overestimate simple savings tactics. It’s a great idea to throw all of your spare change into a jar, or take advantage of bank programs that round up every debit card purchase to the next highest dollar and put the change in a savings account. But before you think that’s an easy path to millions, do the math. Use these tactics to save for a special occasion or weekend getaway, but it’s not going to be enough to fund your retirement.
Perform due diligence before borrowing. If you need to borrow, don’t jump at the first lender willing to write you a check, no matter how tempting. Compare terms, interest and fees from multiple lenders, using an online portal such as MoneyLend.net. Don’t assume you won’t qualify for the best rate – you never know unless you apply.
Understand your expenses before borrowing. Before applying for a loan, take time to truly understand your monthly expenses and make cutbacks wherever possible – you may find out you don’t need a loan, or that you need to borrow less than you expected!
Understand your debt. Debt doesn’t have to be a bad thing, if you understand it, control it, and use it for the right reasons. Are you still paying credit card bills for things you don’t even remember enjoying? Understand the details of each bill. What was it for? How much of your credit card bill is interest, and how much actually goes towards paying off the principal? A little knowledge goes a long way towards debt reduction.
Budgeting. Even though less than a third of us actually do it, it goes without saying that budgeting is the first step towards financial literacy. It doesn’t have to be hard, and can be something as simple as a spreadsheet. At the end of every month, compare your actual spending to your written budget. Chances are, not everything aligns to the penny, but don’t beat yourself up. Just understand where your money went, and make adjustments as you go along.
Know the difference between investing and saving – but do both. You save to have an emergency fund or to reach a stated goal; you invest to grow wealth. These are two separate but equally worthy goals – allocate some money each month for each one.
Understand your credit rating. Financial literacy means understanding yourself, and that also means understanding what others know (or think they know) about you.