Financial Literacy
How often have you found yourself staring down payday hard, with a week to go and the coffers empty? You are not alone. According to a survey done by The Canadian Canadian Community Economic Development website, 49% of Canadians say they are one or two paychecks away from bankruptcy. How does this happen? The answer may be that you only know what you know and most of us don’t know enough about financial wellness. Personal finance management is not taught in our school system and most of us end up learning from our costly mistakes. The good news is its never too late to improve your financial literacy!
The first step is to really understand your current financial picture…what you own and what you owe, otherwise known as your net worth. A simple way to do this is a balance sheet. List all your debts ( your liabilities) on one side of a piece of paper and all your things of value on the other ( your assets). When you subtract your assets from your liabilities, you’ll arrive at your current net worth. If your net worth is a negative number, what it really means is that if you sold all of your valuables, you still wouldn’t be able to pay off your current debt. This is important to know as it should help you decide if you should take on any more debt.
Another step to good financial health is implementing a budget. Budgets are notorious for scaring people off of learning to manage their money but the key is to keep it simple. That’s even easier to do now with the plethora of budgeting apps available. An often forgotten catagory in budgeting that can make or break a great plan is the irregular expenses, like birthday gifts and pet expenses. We tend to plan and budget for our car or mortgage payments but having to unexpectedly buy a wedding gift or pay for a new water heater can be the thing that puts your bank account in the gutter. Pay attention to those catagories on the next budget app you try and have a regular amount automatically deducted from your paycheck to cover irregular expenses. You’ll soon see that its the difference between barely making it and living comfortably.
Lastly, learn the lingo and make a point of understanding the mechanisms of the savings and debt products you own. Because that’s what your loans and bank accounts and credit cards are…products. Think of them like a new DVD player or fancy appliance that have many features, benefits and warnings. Does your bank account allow you to have several free sub accounts that will make budgeting easier for you? What are your prepayment privileges on your mortgage and what sort of difference does it make if you utilize them. Would an extra $100 a month mean you’d pay off your mortgage when your 50 instead of 65? Maybe! You’ll never know until you ask. Most of us will spend hours discovering what our new smartphone will do for us but we have no idea what kind of banking fees we pay each month and what they are for.
It can be intimidating to learn new things, but the important part is deciding that it’s worthwhile to become financially literate. As they say, knowledge is power and that could not be more true then when it comes to your financial health.