How to Build Your Financial Literacy
Financial literacy refers to the ability to make smart financial decisions. It can help you spend wisely and control debt. Having firm financial literacy, will help you meet short and long-term goals like saving for a house or funding retirement. Let’s take a closer look at how to build your financial literacy.
Understand Your Current Financial State
Take the time to figure out where you stand financially. Visit AnnualCreditReport.com to pull free copies of your credit reports. Once you do, you’ll have a good idea of how you’re doing credit wise.
If you have a history of missed or late payments, foreclosures, bankruptcies, and other negative remarks, do your best to avoid them in the future. On the contrary, if your credit reports are in good shape, keep up the good work.
You should also review your current bills to understand your spending habits and debts. If you tend to overspend or find that you’re overwhelmed by debt, create a plan for how you’ll tackle these issues. You may need to create a budget or follow a debt payoff strategy like the debt snowball or debt avalanche.
Learn About Common Financial Terms and Concepts
There are countless financial terms and concepts out there. You’ll often see and hear them online, on the television, and on the radio. It’s wise to familiarize yourself with some of the most common terms and concepts such as:
Annual Percentage Rate or APR is the total yearly interest of a loan you’ll have to pay to borrow that money. If you want to take out a loan or credit card, compare APRs to find the most affordable option.
A lower APR can save you hundreds or even thousands of dollars down the road. A good credit history may qualify you for a lower APR than someone with bad or poor credit. So you may want to improve your credit to increase your chances of securing an affordable APR.
A credit score is a three digit number that predicts how likely you are to repay debt. Lenders and creditors will often look at your credit score before they decide whether to approve you for a loan or credit card. Your FICO credit score, which is the most commonly used score will be determined by factors like:
- Payment history
- Total amount of debt you have
- Diversity of your credit accounts
- Length of your credit history
- How many recently opened accounts you have
Use Financial Tools to Boost Your Literacy
Financial tools can help you analyze and optimize your spending and savings. Fortunately, there is no shortage of them on the market and most options are free. Here are a few to consider:
- Acorns: Acorns is an app that makes it easy to automatically invest your spare change. Link the app to a credit or debit card and it will round up on purchases you make so you can invest the extra money without thinking about it.
- Qapital: With the Qapital app, you can save money toward specific goals. It allows you to create your own savings rules. Once you do, you can allocate money from each rule to a goal of your choice.
Use Financial Literacy to Improve Your Credit and Negotiate with Lenders
Personal financial literacy can give you the knowledge and confidence to negotiate rates. If you’re stuck with a high cell phone bill, for example, call up your provider and ask for a better deal.
In the event they don’t agree, do some research and find less expensive options. You can go through the same process to save money on your cable, utilities, and other bills. Don’t be afraid to negotiate rates on credit cards, loans, and subscriptions as well. A bit of time and effort can save you a lot of money in the future.
Apply Your Financial Knowledge to Build Wealth
To reap the benefits of financial literacy, build wealth. Every month, use some of your income to begin and maintain your savings account. This way you won’t have to live paycheck to paycheck and can fund emergencies as they pop up.
It’s also important to fund your 401(k), Roth IRA, or other retirement accounts. By making retirement a priority now, you’ll be able to enjoy a comfortable lifestyle in your older years.