Our ability to manage money effectively plays a huge part in our lives. It can determine whether we spend much of our time in and out of debt, or worse still, having to rely on formal debt management solutions to get by. Yet despite the crucial role it plays, even basic financial literacy is not taught in many countries around the world.
In a recent global financial literacy survey, educated middle-aged males from developed countries had the highest financial literacy rates, with those from Scandinavian countries scoring particularly high. But what about those with lower financial literacy rates? What are the key lessons they need to learn to improve their financial situation over the coming year?
1. How to use short-term credit wisely
Short-term credit is one of the fastest growing financial products on the market today. The internet has led to a huge rise in the number of short-term credit providers, with loans available with just a few clicks. One of the biggest problems people face is understanding when it is and isn’t appropriate to access short-term credit and learning to differentiate between the various options.
As a rule of thumb, staying well clear of this form of finance is a good start, but unfortunately, life’s not always so simple. For those that do need to access this form of credit, understanding the difference between a good and bad debt and learning how to calculate the cheapest form of borrowing is a crucial lesson for 2018.
2. Better understanding your daily spending habits
Many people spend more money sustaining their lifestyle than they can afford, and this is one of the most common causes of debt problems. Reducing expenses was number 4 on the South African lender Wonga’s survey of the most common financial resolutions for 2018, and for good reason. Whether it’s going out to eat, having too many takeaways or spending too much on alcohol or coffees, many people are simply living beyond their means.
The first step to reducing your expenses is to understand exactly where your money goes on a daily, weekly and monthly basis. Once you have a firm grasp of that, you can then start to cut out those items you can live without. Although daily spending tracking can be difficult to maintain, it is one of the most effective financial lessons you can learn.
3. The power of saving
Saving might not seem like the most rewarding short-term use of your money, but over the longer-term, it is the one thing that can help you achieve your goals and better your financial position. Saving is simply paying yourself first before you spend money on other things you might not need. The abundance of short-term credit options has taught people that you do not have to save for the things you want, but while borrowing might get you there sooner, it will always cost you more in the long run.
These are three really simple and incredibly important lessons that are often overlooked but which could help you improve your financial position in 2018.