Financial well-being is on some levels like physical well-being or maintaining a healthy body. Just as you nourish your body with balanced meals, invest in an exercise regime to keep it healthy and strong, harness your energy reserves for doing extra work and treat your body with utter care to live long and happy- you need to treat your money with the same care. And this starts with being financially literate.
While taking care of yourself is intuitive and comes right from the beginning, financial literacy should also be part of your organic learning from childhood itself.
Financial literacy is a critical life skill that empowers individuals to make informed decisions about their finances, ensuring a stable and secure future.
So, what is a beginner’s guide to financial literacy? At a level of maturity, when we discuss financial literacy, we graduate from the basic skills of saving. We understand the difference between saving and investment and we look at the various other aspects of personal finance, including budgeting, debt management and retirement planning.
Women especially need to understand these concepts for they primarily take on caregiving roles in life, take career breaks for their family and consequently may not end up accruing a similar amount of wealth as men in their lifetime. The financial dependence on a significant other, largely also rules matters of personal lives leaving them often in situations from which there is no way out, as they haven’t taken full charge of their finances. Promoting financial literacy among girls and women is a step toward bridging these gaps and enabling them to take control of their financial well-being.
Let's start with the basic concepts
Budgeting is a process that helps you understand where your money is going and identifies areas for potential savings. It tells you to put all your life choices into the baskets of needs, wants and desires and manage the money that you earn or has been given to you to manage.
Simply put, saving is not spending. Saving here has to be seen as a verb and noun both. While the act of saving money simply means we put aside money, but in the financial language your savings are amounts being made available for future expenses. What you do with the money you have not spent, will decide your readiness to handle future responsibilities and live your life the way you choose to live.
If you have saved money, but not invested, it will not grow. Investing can help you grow your wealth over time and that is the basic difference between investing and saving. Inflation brings down the purchasing power of money over time, causing its value to decrease. When prices go up over time, money we merely save without investing loses its worth because it can't keep up with higher expenses.
You may choose to invest money in different investment options, depending on your needs (goals), the time you can keep your money invested and the risk you are willing to take. Educate yourself about different investment options, such as stocks, bonds, mutual funds, and retirement accounts. Consider seeking advice from a financial advisor to tailor an investment strategy that aligns with your goals and risk tolerance.
Borrowing & Debt Management
Financial borrowing refers to the process in which for fulfilling your needs, you take money from an individual, organisation or institution with the expectation that it will be paid back over a set period of time, with an added interest. Banks offer loans for buying assets, education, starting businesses or even covering personal expenses.
Using credit cards is also a form of borrowing. You are expected to pay the outstanding amount fully on the due date. If paid partly, you are charged interest on the balance amount, which is usually a very high percentage. Your debt management is not just about paying your instalments in time but also ensuring that you do not overstretch yourself on either the number, amount or period of loans taken.
It is important to understand the significance of insurance in order to protect yourself and your loved ones in times of calamities. Simply explained, insurance is an arrangement where you protect yourself, your loved ones, your business or your assets by paying a premium to an insurance company for protection against financial losses, in the event of the risks playing out. Two key insurance covers required by individuals are health insurance and life insurance. If you are taking a loan to buy assets, it becomes critical to ensure sufficient life insurance coverage to safeguard your family in case something happens to you.
Don't delay planning for retirement. With the power of compounding you can create a significant amount of corpus for your retirement over time. Retirement planning secures your financial future by ensuring you have adequate funds to sustain your lifestyle after you stop working.
Last, but not least, it is important to have at least basic knowledge of how your wealth will be passed on after you, or how you will inherit. Nomination in your various assets, preparation and execution of a Will, giving a power of attorney and creating family trusts are some key instruments that can be used for estate planning. Proper planning ensures that your assets are distributed according to your wishes and can minimise stress for your loved ones in the future.
Now there are several ways of making yourself financially literate as there are umpteen resources available in the form of financial workshops, online courses, books and podcasts and of course financial advisors. Women networks play an important role in co-sharing and helping the collective sisterhood with experiences and learnings.
In conclusion, empowering women with financial literacy skills is a pivotal step toward achieving gender equality in the realm of personal finance. By understanding budgeting, saving, investing, and other key aspects of financial literacy, women can confidently navigate their financial journeys.
Just as you invest in your body's well-being today for a healthier tomorrow, investing in your financial knowledge and planning today paves the way for a more stable and rewarding financial future.
Disclaimer: This article and discussion is for educational purposes only. Nothing discussed here should be considered as financial advice and you must do your own due diligence or take the advice of a SEBI-certified investment advisor before you take your investment decision. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
The article is published in collaboration with BSE Investors’ Protection Fund to spread awareness with respect to personal finance and investing, especially for women.
Suggested Reading: The Difference Between Savings and Investment: Which Is Better For You?