The Surprising Link Between Financial Literacy and Success

We all deal in money every day, all day, whether it’s earning our paychecks, paying our bills, or making financial decisions. All of these tasks revolve around financial literacy.

It’s not enough to make and spend money, you must understand how to make smart decisions that will set you up for success. While success is subjective, it’s also measurable in specific ways, such as having money left over after each paycheck and savings to weather you through a financial storm.

It all starts with an understanding, but you don’t have to go it alone. We’ve got you covered on all things financial literacy.

What Is Financial Literacy?

Financial literacy is the understanding of how to effectively manage and put your money to use. It includes skills such as budgeting, investing, and managing your personal finances.

According to MyMoney.gov, there are five principles to being financially literate: spending, saving and investing, borrowing, earning, and protecting. It’s about learning to how be successful with your finances to avoid pitfalls. That’s not to say you’ll never make mistakes. We all do. But it will teach you how to better handle those situations without digging the financial hole deeper.

Why Does It Matter?

Financial literacy is important for several reasons, the most significant being the more you learn, the smarter habits you develop, and the less susceptible to fraud you become.

Being financially smart can also help achieve long-term goals, such as investing so you don’t struggle in retirement or starting and running your own business.

How Do You Become Financially Literate?

This is where education is so, so, so important. You need to learn how to balance your finances efficiently through budgeting, tracking income and expenses, and planning for the future.

If you’re not sure where to begin, consulting a financial advisor or enrolling in financial classes for adults should be your first step.

Be Better Prepared for Emergencies

Being financially literate means you’ll be better prepared for emergencies, as in you’ll have money set aside should something go drastically wrong in your life. Think accident, being laid off, or needing an expensive repair in your home.

Hopefully, you’ll never need it, but knowing how and how much to save is the key to preparation.

Reach Your Financial Goals

Everyone should have financial goals, whether it’s to buy your first home, purchase a new car, or put money away so you can live the lifestyle you want in retirement.

If you’re financially literate, you’ll have a better understanding of how to achieve those goals. It can also help you choose what goals to set.

Prevent Costly Mistakes

Many people have had at least one financial emergency with long-term implications. Others have had to dig themselves out of a costly hole.

Knowing how to avoid these pitfalls in the first place is the key to ensuring you don’t end up repeating the same mistakes over and over again.

Develop Good Habits

There are a number of good habits you should develop on your quest to become financially literate.

These habits can help set you up for financial success in the future. And the good thing is even if you have a checkered past with money, it’s never too late to learn and employ new practices.

Pay Yourself

When you put in the time to earn the money, you should reap the rewards of your hard work. That means you pay yourself first, and put the money toward your success before you pay for your other expenses.

Making yourself a priority is one of the cornerstones of being financially literate.

Pay Bills on Time

This one is a given. Paying your bills on time demonstrates responsibility and is a must for anyone who wants to have a solid financial history.

If you’re constantly busy and forgetting due dates, consider setting up automatic payments to avoid late fees and possible shut-off or collection notices, which can be damaging to your financial health.

Create a Budget

Creating a budget is a great way to keep yourself on track to meet your money goals. It provides a clear picture of your income vs. expenses and your overall financial health.

In some instances, writing your budget down can clue you into changes you need to make to reach your financial goals.

Manage Your Debt

Nobody likes to have debt, yet many of us do anyway. Managing it—and effectively so—is the key to ensuring it doesn’t spiral out of control.

You’ll want to develop an effective way of paying down your debt to avoid continuously paying elevated interest charges.

Invest

Investing is the key to putting your money to work for you. Don’t leave large sums sitting in your checking. While it’s nice to have the funds to draw on, you could be multiplying your money if you invest it wisely.

It’s possible to learn all about investing yourself, but if you are clueless in this realm, a financial planner can help determine which types of assets are best for your financial goals.

Track Your Credit Report

Your credit score is just one bit of the picture, but it’s important to track it because fraud unfortunately happens every day. And, as much as you’d like to think so, you’re not immune.

Tracking your score and report regularly can clue you into either missed payments or fraudulent activity, which you can catch before doing more damage in both cases.