Let's Talk Fiscal Literacy
Embarking on the Journey to Financial Literacy: The First Steps
In the age of constant financial flux, achieving true financial freedom can feel like an elusive dream for many. But fret not, for the journey to financial literacy begins with small, manageable steps that can lead to significant gains in the long run. Just like the teachings of the timeless classic "Rich Dad Poor Dad" by Robert Kiyosaki, let's explore the first steps to take in acquiring financial literacy and empowering ourselves for a prosperous future.
Embrace the Learning Mindset:
The first key to acquiring financial literacy is to adopt a learning mindset. Be curious, seek knowledge, and question the status quo when it comes to finances. Read books, attend seminars, listen to podcasts, and follow financial experts who share their wisdom. Knowledge is power, and the more you educate yourself about money, investing, and personal finance, the more you will be able to make informed decisions. Since this field is also filled with self-professed “Gurus” you need to be careful on your educational quest. A big red-flag to lookout for is if the information provider has something (program) to sell. It may be legit but do your own research behind the information they present.
Understand Your Financial Situation:
Take a clear and honest look at your current financial situation. This involves knowing your income, expenses, debts, assets, and liabilities. Create a budget to track your spending, identify areas where you can cut back, and allocate funds towards savings and investments. By gaining a clear understanding of your financial standing, you'll be better equipped to set achievable goals and create a roadmap to success.
Pay Yourself First:
One of the fundamental lessons from "Rich Dad Poor Dad" is to pay yourself first. Allocate a portion of your income to savings and investments before spending on anything else. This disciplined approach builds the foundation for building wealth over time. Consider setting up an emergency fund for unexpected expenses and a separate investment account to grow your money. Saving Money doesn’t necessarily mean that you put the money away then forget about it. Find ways to grow the money. This means that you can buy high-rate Certificates of Deposits (CDs) that offers a no penalty withdraw clause so you can access the money if needed in an emergency. You can buy the CDs in chunks (for example $500 at a time) so that you can access the money in $500 increments and the rest of your funds grow undisturbed. If $500 seems out of reach, Fidelity offers fractional CDs for as low as $100! Another option is investing your money in stocks and Exchange-Traded Investment Funds (ETFs). A list of top 100 ETFs can be found at VettaFi.
Diversify Your Income Streams:
Unlike 40 years ago, relying, solely. on one source of income is risky. You are relying on one company’s financial management, one boss’ mood, and potentially one company policy violation away from your sole livelihood being in jeopardy. Embrace the idea of creating multiple income streams to secure your financial future. This could involve starting a side business, investing in stocks, real estate, or other assets, or even exploring freelance opportunities that align with your skills and interests. Diversification helps spread risk and enhances your chances of financial success. While it is generally true that it takes money to make money, you don’t always need a lot of money to get started. You can use some of the money from your single or main income to start or buy a side business that generates more money. For example, you don’t need to be a hairdresser or beauty expert to own a hair and beauty shop, you just need to lease the space and hire hairdressers and beauty experts. You can charge per chair or pay hourly wages depending on the business.
Manage Debt Wisely:
Not all debts are created equal. Differentiate between good debt (debt used to acquire assets that appreciate or generate income) and bad debt (consumer debt that adds no value). Focus on reducing high-interest debts, such as credit card balances, while responsibly managing mortgage or student loan debts. Being prudent with debt management sets the stage for better financial health. Don’t leave money in your savings and checking account earning a fraction of a percentage of interest and then pay teens, or twenties, or even thirties in interest on your credit cards. Pay off the credit cards first, as that “savings” as well. The best way to achieve good debt management is to live well below your means. You will be amazed and will be impressed with yourself with a few changes. Do you really need the latest and greatest phone or computer? Most of us use about 20% on our phone and computer’s capacity but we pay full prices and upgrade to top specs. If you “must” have the iPhone [#] PRO MAX than keep it for 5 years at least. You can use the money save to buy apple stocks and use the growth to buy the next phone every 5+ years.
Cultivate Patience and Discipline:
Acquiring financial literacy and building wealth is not an overnight journey. It requires patience, discipline, and resilience. Avoid get-rich-quick schemes and stay committed to your financial goals. Stay focused in the face of market fluctuations, current events and remember that the long-term view is what counts in the pursuit of financial independence.
In conclusion, the path to financial responsibility begins with these initial steps, which lay the groundwork for a lifetime of sound financial decision-making. Commit to continuous learning and responsible financial habits. By doing so, you set yourself up for a future of prosperity and financial freedom. Start today, and let your journey to financial literacy begin.
Written by: Joe Coffie, VP, ACE