When handling the topic of financial literacy, four foundations serve as the fundamental pillars. Do you know what they are?
1. Debt; Good and Bad Debt
Debt is spending money you are yet to earn. You are borrowing from your future, whose certainty you are not sure of. Most people perceive debt with a lot of negativity. This, however, should not be the case.
Good debt entails borrowing for absolute necessities or stuff that can generate money. On the other hand, bad debt entails borrowing for stuff that depreciates fast or adds little-to-no value.
Good debt entails borrowing money to invest in a skill, education, or a home. Borrowing to buy the latest fashion, the latest technology, and unnecessary holidays falls into bad debt.
2. Budget properly
Budgeting skills enable financial literates to account for every penny. To create wealth, your income should be more than the expenses.
A budget helps you allocate money to short and long-term expenses. The amount that doesn't fall into expenses should go to your savings.
A budget saves you from impulse buying and sticking to one, shields you from buying stuff you don't need.
3. Save for the Future
A safe financial future depends on your savings. 20% of your income should go into your savings account. Good savings accounts are those that have the potential to increase the amount through interest.
4. Invest wisely
Investing involves increasing the number of sources and your income amount. This is the most challenging pillar because people fear losing their money or end up investing in things they don't understand.
