Finance with Lucky

What is financial literacy?

Ability of a person to understand the value of their money. This includes multiple skills such as making budget, savings, making proper investments and knowing when to use debt.

Why financial literacy matters?

• It helps you to avoid financial stress. You can track your income and expenses.
• It helps you to prioritise needs over wants. Need: You need to pay grocery bills and electricity bills. Want: Purchasing a latest smartphone
• Security : If you have 3-6 times of your monthly expenses saved as an FD or in your savings account, you can use it in case of any emergency situation. This is also know as emergency fund.
• Future building: It helps you to learn how to invest your money so that it can grow. This will help you to meet the future expenses.

Key elements of financial literacy:

1. Making budget: This is the first step towards being in control of your finances. There is a widely accepted rule which can help you to create a budget:

• 50% of your income can be used to meet your needs like rent, groceries and other bills.
• 25% of your income can be used for entertainment and other luxuries.
• 25% of your income should go towards savings and investments. If you don’t have any emergency fund, you should use this money to build that first.

2. Savings: Try to save money as soon as you get your salary or income from any other source. Your expenses should always be Income – Savings. If you try to delay savings for end of the ninth, you’ll end up with little to no savings most of the times.

3. Investment: There are many options to invest your money like FDs, government bond and securities, Stocks and mutual funds. While FDs and government bonds offer fixed returs, these are usually very low (6-9%). Returns in stocks and mutual funds can be on a higher side (10-15%), but these are not guaranteed. If market is going down, your investments can decrease instead of increasing. (We will discuss more about these investment options in our upcoming blogs.)

4. Managing debt: It is sometimes necessary to take loan when you can’t afford to pay all the amount upfront. You should always try to take the loan from a trusted source which offers the least interest rate. If you have multiple loans, try to repay the loan with higher interest rate first.

5. Future planning: Plan for your future expenses like education or wedding of your children. You should also start planning about your retirement before it’s too late.

How to improve financial literacy:

• Follow the latest news in the market.
• Read books and articles on personal finance.
• Track your expenses.
• Always wait and analyse before making a big purchase.

Lesson:

Personal finance is a continuous process. Being financially literate is not a choice but a necessity. The sooner you start your journey, the sooner you can relax about the financial future of your family.