Financial literacy is an important topic for everyone who wants to become wealthy. Being financially literate gives you control of your money, and it's the sure way to become wealthy. Knowing the four pillars puts you a step ahead in this journey of creating wealth.
Debt, saving, budgeting, and investing are the four fundamental pillars described in this article. It doesn't stop at being aware of the pillars, but how each one contributes to wealth creation.
1. Debt; Good and Bad Debt
Debt is spending money you are yet to earn. You are borrowing from your future, whose certainty you are not sure of. Most people perceive debt with a lot of negativity. This, however, should not be the case.
Good debt entails borrowing for absolute necessities or stuff that can generate money. On the other hand, bad debt entails borrowing for stuff that depreciates fast or adds little-to-no value.
Good debt entails borrowing money to invest in a skill, education, or a home. Borrowing to buy the latest fashion, the latest technology, and unnecessary holidays falls into bad debt.
2. Budget properly
Budgeting skills enable financial literates to account for every penny. To create wealth, your income should be more than the expenses.
A budget helps you allocate money to short and long-term expenses. The amount that doesn't fall into expenses should go to your savings.
A budget saves you from impulse buying and sticking to one, shields you from buying stuff you don't need.
3. Save for the Future
A safe financial future depends on your savings. 20% of your income should go into your savings account. Good savings accounts are those that have the potential to increase the amount through interest.
Saccos, retirement benefit plans, and savings bank accounts are good examples. While you save, don't enslave yourself; treat yourself to a good time once in a while.
Life is full of uncertainties. To prevent using your savings during emergencies, allocate part of your earnings into an emergency fund. The fund should last you up to 6 months.
4. Invest wisely
Investing involves increasing the number of sources and your income amount. This is the most challenging pillar because people fear losing their money or end up investing in things they don't understand.
Invest in what you can explain to a 2-year in a paragraph for them to understand. Examples of good investments include buying shares and bonds. Real estate is also a good investment. The risks of investing in such ventures are minimal, and the returns are reliable.
As you work towards creating wealth, invest some of your time and effort in understanding the four pillars of financial literacy. Find out what is hindering you from becoming wealthy and adjust accordingly.
