Money touches every aspect of our lives— from the way we plan our daily expenses to the dreams we hope to achieve in the future. Yet, many people feel overwhelmed when it comes to managing their finances. The good news is that you can master and effectively use various financial skills and concepts by gaining financial literacy.
Incorporating simple financial habits such as budgeting, smart spending, or saving into everyday life can help you work toward a secure future, regardless of income level. Therefore, financial literacy is the first step to making informed decisions and taking control of your finances.
This article will teach you how to use financial literacy daily, by covering key concepts such as budgeting, managing debt, saving, and investing.
How to Budget for Financial Health
The foundation of financial health is calculating your expenses and tracking your spending — in essence, that is what budgeting is. Creating a personal budget is an easy hack that will allow you to allocate and manage your money wisely, whether your goal is to cover basic needs on a low income, save for an emergency fund, or achieve long-term savings.
The first step to start budgeting is to calculate your monthly income. If your income fluctuates from month to month, base your calculations on an average. The second step is to list your regular expenses and divide them into needs vs. wants.
- Your needs are essential expenses on which you spend money regularly, like rent, food, and utilities, among other things.
- Your wants are non-essential purchases such as entertainment or dining out.
Identifying these categories can help you prioritize spending, ensuring that necessities are always covered first.
There are several budgeting methods that teach you how to track expenses and allocate your funds, as well as different budgeting tools that will help you visualize and categorize your expenses. Check out our detailed guide on how to budget to explore different methods and tools to support your financial planning.
How to Spend Smartly and Reduce Extra Expenses
Once you’ve mastered budgeting, you’ll be able to identify any nonessential expenses that you could cut back on.
Frugal living is an example of how to reduce extra spending. It is a minimalist lifestyle that consists of consuming things in moderation and avoiding trendy or temporary purchases. Though a lot of people already live frugally, new tips have emerged from communities online after this lifestyle gained traction on social media. Here are some techniques shared online that you might not have heard of:
- Use cash instead of cards to control spending.
- Cook your meals at home instead of going out.
- Unsubscribe from store and restaurant notifications.
- Look for ways to repair or repurpose things instead of throwing them out.
- Avoid impulse buys, sleep on it before making a purchase.
- If you need to buy something, search for discounts or second-hand options first.
- Identify and cancel any unused subscriptions.
- Sell things you don’t use on reselling platforms. Research the most popular local platforms or use international ones such as Facebook Market or eBay.
- Review phone plans, streaming services, insurance policies and more to ensure you’re not overpaying for services you don’t need, or that there aren’t any cheaper alternatives.
Ultimately, there are countless small ways in which you can cut back on extra expenses. For more detailed strategies, check out our guide on ways to save money on a tight budget. Additionally, discover how AI is reshaping the way you manage your money and helping people reduce their spending.
Once you’ve mastered the art of budgeting and spending smart, you’ll be able to think about allocating some money towards savings.
Saving for the Future and Setting Financial Goals
If you ever find yourself in a position in which it is possible for you to start saving money, it is essential to define your goals:
- Short-term goals: are aimed towards day-to-day responsibilities and expenses. For instance, this can be as simple as saving money to buy school supplies for the upcoming back to school season or sending money back home to help your family with unexpected expenses.
- Mid-term goals: are for the near future, usually between 5 to 10 years ahead. You have time to devise a plan and calculate how much money you need to put aside to reach your goal, like buying a house.
- Long-term goals: are for 20 to 30 years ahead. They are meant to set you up for a time when you won’t be working anymore and can include retirement planning, for example.
To learn more about the steps to come up with your own goals, such as creating a plan and opening a savings account, read our article on setting financial goals in three easy steps.
If you find yourself with extra money beyond covering necessities and saving for emergencies, investing can be a great way to grow your wealth over time. However, investing carries risks and requires careful planning, research, and financial education.
While it may seem intimidating at first, understanding the basics can help you make informed decisions. To learn more about how investing and compound interest work, check out our guide on investing basics.
However, some people face extra obstacles that prevent them from starting to save and invest their money: debt.
How to Manage and Repay Your Debt
Keep in mind that not all debt is the same. Some types of debt can be stepping stones to a better future and financial growth. That is what is called good debt. It consists of loans that can increase earning potential and build wealth over time, such as student loans, home mortgages, or business investments.
On the other hand, bad debt is usually a high-interest consumer debt or a loan for discretionary purchases. Some examples of this are loans used to pay for vacations or shopping, as well as credit card debt. In any case, bad debt is hard to pay back and can trap people in financial stress.
Global household debt has been rising according to the International Monetary Fund, with many families struggling to pay off loans. No matter the kind of debt you are in, the common goal is to get out of it. Here are some effective debt repayment strategies that can help:
- Avoid taking on new debt: Only borrow when necessary. Always review the terms carefully before agreeing to a loan.
- Debt consolidation: Combining multiple debts into a single loan can simplify repayment and potentially lower interest rates, making debt management easier and reducing the total interest paid. This is especially useful for those juggling multiple loans or high interest debt.
- Snowball method: Pay off the smallest debt first, regardless of interest rates, while making minimum payments on others. Once the smallest debt is cleared, move to the next. This will make you feel a sense of accomplishment and build your motivation to stay on track.
- Avalanche method: Prioritize paying off the highest-interest debt first, reducing overall interest paid. This method minimizes overall interest costs and helps you get out of debt faster.
- Negotiate with creditors: Some lenders offer hardship programs with lower interest rates or extended payment plans. Don’t hesitate to ask for better terms.
- Seek professional advice: If managing debt feels overwhelming, consider consulting a financial advisor or a credit counselling agency for personalized guidance.
- Create a budget: Creating a budget and spending smartly will help you reduce unnecessary spending, freeing up more money for debt repayment.
By implementing these debt repayment strategies, you can work toward financial stability and long-term savings.
Using Financial Literacy in Your Everyday Life
Financial literacy is not just about learning concepts— it’s about applying them daily. By consistently practicing good money habits such as budgeting, reducing expenses, setting goals, saving money and making informed decisions, you can work toward financial security no matter where you start from.
The importance of financial literacy extends far beyond personal finance, it also empowers individuals to make informed decisions in all aspects of life. By integrating financial literacy into your day to day habits, you can secure a stable future for yourself and your loved ones.
Check out the Personal Finance section of our blog for more financial literacy tips!
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About the author
Myriam Fernández German
Myriam Fernández German is a content writer with a multicultural background who explores the social and financial impact of remittances in today's global society.
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