Small steps to creating wealth

What is financial literacy?

Financial Literacy is the ability to make wise decisions regarding money and how it can work for you. Making your money work means using it to fulfill your goals and dreams. It has been said, “He who fails to plan, plans to fail.”

Why is it important?

Equally important is knowing how much money is coming in, and where it goes. This knowledge will help with the achievement of all your goals – financial as well as other goals. You may have heard the saying “Money makes the world go round.” Think of your noblest effort, say you want to help the poor by opening a soup kitchen, it takes money to be able to do that. It takes money to run a soup kitchen or help other people. If not it will just be the poor looking at the poor.

Start with a budget

Some people look at budgeting with disdain. They question the rationale behind taking a record of their spending, especially if they do not think they have any money. It has been said that “a small leak will sink a big ship.” Having a budget is part of the planning process. A budget allows you to see how much is coming in, and how much is going out. It allows you to plan how, why, where, and what. How much is coming in? Where it is coming from? and what you are spending it on? A budget is just a tool that allows you to be in control of how you want to spend what you have (whether it is a little or a lot).

Start small

Recently, I was talking with a relative, in Jamaica. In the conversation, I asked if they were saving. Fine, it was not a “big” job, and this person was just getting by on what they were earning. In fact, they were not getting by. I got the usual excuse “Aunty, I cannot save because I do not have anything left at the end of the 2 weeks. I said to them “OK, let us work through this”. Say you get $5000 every 2 weeks. At the end of the month, how much would you have received? The answer came back “$10000”. At the end of 6 months, how much would you have gotten? The answer came back “$60000”. At the end of 1 year? “$120000”. I said “Would it not be painful for you to look back at the end of a year, and see that you held $120000 in your hands and there is nothing to show out of all that money?” “Here is what you do, save 10% or more of your pay every fortnight.” Initially, it will not be much, but imagine at the end of 6 months or 1 year how much you would have saved?

Automatic Savings

Another step is to make your savings automatic. Go to your bank and get the relevant form. Take it to your payroll department and have them send that amount to your bank every pay cycle. This will go into a savings account. The next step is to open an investment account. A portion of the money will go towards savings – let us call that your rainy-day savings or emergency fund. The other portion will go towards your future – investment account. In effect, you will have a portion in savings and a portion in investing.

Smart Career Moves

My conversation with the relative continued. “What are you doing in terms of your career? What is the end goal? At the end of five years, do you see yourself in this same position?” “No way” was the firm response. My question was “What are you doing to change that? You know if you do not do anything, you are going to be right where you are today, in five years? How do you plan to fix that? Your career choice determines how much money you can earn. So, if you want a high-paying job, what are you offering to the marketplace? Consequently, you need to have the skills that the marketplace is looking for and are willing to pay for.
Use these lessons in whichever country you are presently residing in.
Determine an amount that you are going to put aside and make automatic payments.

Research Investment Options

Look at the best way to invest your money. This may mean getting acquainted with different investment options, such as bond funds, stock market, etc. The more you know, the better decisions you will be able to make, especially as it relates to your finances. Spend time learning how the different instruments perform, and what they are invested in, and learn the language of financing. Several books are geared towards financial education, whether you are a novice investor or a self-proclaimed expert.

Think Long-term

It is prudent to think beyond just today’s living. Failure to plan and invest for the long term means that you will have more days or years than money. As you progress in years, some things become important such as doctor’s fees and medication. No longer can parents expect their children to become their old age pension, as these adult children most times will not have the required resources to take care of their own family as well as aging parents. In this economic environment, adult children most times have not acquired the required resources to take care of their own families much less to take care of aging parents. Sure, they may be willing to take care of their parents, but without the resources, it will just be talk. We all know that talk cannot put foot on the table nor go to the pharmacy for medication.

In summary, being financially literate means being able to manage your resources, time, and money. It starts by ensuring that you use a budget to keep track of your income and expenses. Start saving small amounts until you can save more. Make saving and investing a priority so that your later years will not be spent wondering whether you should be buying food or medication. Your children will also thank you for providing for the future so that they can focus on making you comfortable with access to the best care available.

*Stock image provided by Pixabay