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 Financial Literacy, a subject often avoided, clouded in mystery or misunderstood. 

 True! and a fact for many! 

 A recent survey found 46% of people confirmed these feelings of finding financial information hard to understand.

Is that you!! 

In a time of rising prices across most essential items, interest rates rapidly increasing and a booming buy now pay later market, it is critical to have some understanding of how money works.  Basic financial literacy is a must.  

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We begin with the premise that for most of us saving and budgeting are essential to financial wellbeing and the ‘smarter’ we are with our money the better we are, and the better we sleep! 

The foundation of this thinking is understanding how your money works, or doesn’t. For example, what are the fundamentals of borrowing, the intrici's of home loan and credit arrangements and how to survive financially to retirement! 

Simply, how money works and how, when to build, grow, your assets and gain some extra dollars to make that money work harder for you.

To help you with these questions there are resources available, such as: Moneysmart.gov.au 

Basic literacy includes knowing the:

• Fundamentals of how home loan rates work
• Credit card rates
• Power of compounding interest 

Is this sounding complicated!  

Don’t despair, read on, there are ways for improving your literacy!

How to improve your Financial Literacy

In a nutshell, the 4 Principles to building Financial Literacy are: 

1. Budgeting 

Having a budget allows you to direct your money rather than wondering what happened to it, where did it go!. A sample budget formula is to allocate up to 60% of your net wages to your financial obligations and essential needs. This includes items such as food, mortgage, education, healthcare and utilities.

Set aside 20% to savings and balance to your other wants.

Budgeting plans will need to include outstanding debts and loans that need to be repaid. If this is the case you need to reduce your spending on wants and it will impact your savings target.

Budgeting enables you to set financial goals and is an essential step to saving a deposit for a house, or buying a car.  

2. Debt - managing it

Managing debt is about getting your debt under control through budgeting and financial planning.  Common warning signs are:

• Missing due payment dates, e.g. late payment of rent/mortgage
• Paying on credit card rather than your debit card
• Multiple loan accounts, credit cards and Payday loans

Avoidance and delaying are common symptoms of financial stress. It’s vitally important to address this straight away. Be honest and identify where ‘all’ your money is going.

Start by taking ‘stock’ of all your debts then looking at ways to consolidate it.

Develop a debt reduction plan and seek financial advice as needed.

Importantly get on top of your spending to avoid more debt TODAY!.  

3. Saving 

Top Tip. Start a savings account, even the smallest amount can get you into the ‘savings’ habit. Set yourself savings goals, for example, income of $1,000 set aside 20%, $200. If this amount is too much start with a smaller amount with the aim of increasing your regular savings to 20% in the next 3 months.

It is important to put your savings into a separate account. Ideally set up a direct debit for the same day as your pay comes into your account. By automating the process you will be developing good savings habits.

4. Investment 

After all the sweat and tears in earning income and savings it is vitally important that your investment choices are made wisely.

There are some smart rules when it comes to investing. Start with knowing what you can afford to invest, developing an investment plan and seeking expert advice as needed.

For example, when you purchase your first home be really clear about how much you can afford. If you buy a $1million house but you can only afford repayments on a $700,000 house you will create immense financial strain.

Tip: We are often tempted by ‘hot’ tops from friends, social media and influencers. It is essential you seek professional advice and do independent research. Critical to sound investing – ‘if it sounds too good to be true, likely it is!’

For more information go to: moneysmart.gov.au or speak with a financial planner.