If everyone was always prepared for the worst, had more than enough saved up for any purpose, to reach any goal or deal with any emergency (without any debt), then it would be safe to assume the world would be financially literate.
We all probably thought at one point or another, “Why isn’t everyone at this point?” or “Why isn’t this taught in our schools?”
Well that’s an article for another time. But let’s start off simple for now.
What is Financial Illiteracy?
It’s not understanding, knowing very little or being not well educated on the subject of handling money.
Financial Literacy then, would be understanding, or being well educated on this subject.
What does Financial Literacy look like?
For someone to be considered Financially Literate they should have down the basics of these categories, we call them the Six Steps to Financial Independence.1
- Budgeting – spend less than you make
- Debt Management – debt should not interfere with the rest of your finances
- Emergency Fund – Have 3-6 months of income or expenses dedicated for unexpected expenses
- Proper Protection – Having adequate Life Insurance and living benefits so medical conditions do not negatively impact you or your families financial well-being
- Asset Accumulation – Putting your savings in a place where it can outpace inflation, reduce taxes are all part of building wealth and retirement
- Estate Preservation – Transferring your wealth after you pass (Estate) requires planning with an Estate Planning Attorney to make sure your estate is set up in a way where your wishes financially (and health-wise) are legally established, documented and enforceable.
This would be a holistic approach to personal finances, that can even apply to businesses on a basic level.
Learn each of them well and work on improving each of these six areas to improve your financial education, financial-health and financial-well-being.
That way you are well equipped to navigate life and whatever it may throw at you with more confidence and security. Who doesn’t want that!
- For education purposes only. This is not financial, legal or tax advice. Consult the appropriate professional before implementing a strategy to make sure you find the right solution for your specific needs. ↩︎
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