It’s the buzz term being thrown around everywhere: it seems we all want to get financially lit(erate). But what does it actually mean? Is it hyper-frugal living and reusing toilet paper? Is it earning a six-figure salary? Or is it chasing that elusive emergency fund sweet spot; you know, the one where you can get a flat tyre and not have an emotional breakdown about paying for it?
We caught up with our friends at Pearler to get their thoughts on what financial literacy really means. Here are the key components according to the pros.
The first pillar of financial literacy is ditching debt and the stigma associated with it. Consumer debt is one of the main things that can hold you back on your path to financial freedom, so kicking credit cards, car loans and personal loans can help you make one big leap forward.
Beyond just paying off debt, understanding debt and how it works further builds out your financial confidence, and helps you break the cycle of spending with debt on non-essentials.
Getting Prepared For Life Stuff
Here it comes: the emergency fund. Building an emergency fund is one of the key pillars of financial literacy, because it prevents you from having to sacrifice progress every time a life cost comes up. (Read: get a flat tyre without crying).
Having an emergency fund that grows with your lifestyle is critical. Each time you take on more financial responsibility—like buying a car, owning a property, having kids, or even getting comfortable on a higher income—you need to reflect that in your emergency savings to ensure you’re prepared.
Factoring in things like life insurance, TPD insurance, trauma insurance and income protection insurance can boost your feeling of financial resilience, by having a financial back-up plan for more severe eventualities.
Making Your Money Work For You
Once you’re debt free and you’ve grasped the concept of saving and preparing for a rainy day, the next pillar of financial literacy is making your money work for you. That means, not being a slave to your salary, and understanding how to put your money to work beyond your savings account.
Investing in shares can be a great way to set yourself up for the future, while also channelling your values and using your money to cast your vote in the world through strategies like ethical investing. Just like saving, investing regular amounts can keep the momentum going in your journey to financial freedom, and allow you to benefit from a long-term investment strategy.
Overcoming Risk Fear
This isn’t to say risk shouldn’t be considered, but many of us limit ourselves from reaping the rewards of investing because we’re so darn scared of the risks. While the risk of investing in property, shares or business are very real, there are ways we can offset some of those risks by focusing on long term strategies that build sustainable, gradual wealth.
Emma is a finance blogger at The Broke Generation and a reformed spendaholic. She shares hot tips on saving, property, tax, career and investing for millennials who want to break the spending cycle and get financially confident.
Pearler is a challenger investment platform that’s helping Aussies reach financial freedom faster and easier. Focused on long term investing to create sustainable, real life wealth on any income, Pearler is changing the game of investing by starting the conversation among real people. Right now, Pearler is granting access to Aussies who are already feeling on top of their money. You’ll have a chance to see brand new functions and invite friends and family who could use some inspiration on getting their money sorted. Skip the waitlist by using this link.
Image Credit: Alexandra Marcu