You may have heard your parent talking a lot of negatives about finances, yet you study, learn and invest your time into learning how to create a living for yourself. Do you want to create wealth or living? The best 2 ways how to greatly improve your financial literacy will give you a clear answer to wealth or living creation.
You may want to know what is the difference between living and wealth creation.
According to financial literacy, you can learn how to manage money well and then go around in your life just financially fine. Which is also a very good achievement.
Or you want to grow your knowledge more and get ahead just the standard: ”I am financially fine.” And create long-lasting wealth.
Creating living is mastering your budgeting skills. While creating wealth is mastering financial literacy and how money actually works.
What are the best 2 ways how to greatly improve your financial literacy?
What that financial literacy actually even mean?
Financial literacy isthe ability to understand and effectively use various financial skills. We are talking about money skills.
These skills include personal financial management, budgeting, and investing.
The meaning of financial literacy is the foundation of your relationship with money, and it is a lifelong journey of learning.
The best 2 ways to greatly improve your financial literacy are:
- learn how to budget
- generate wealth
1. Financial literacy improved by learning how to budget
The best step to start is to get your own cash income and expenses list first.
The successful stories of people with great budgeting tell, that they usually pay much attention to income, as well as expenses.
What if I have only 1 salary?
Yes! Okay. Not a problem.
So you should pay attention to it and benefit from it.
Otherwise create multiple streams of income.
Life can be lived differently and you can create financial security for yourself.
The actual chart below is self-explanatory when it comes to the cash flow economy in your household.
You need to know how much you earn, save and spend and then how much you are able to allocate on the side for further investment for your future.
Simple and straightforward principles in thepersonal budgetchart.
Step 1 – Track your income even if it is only a single salary. This habit will allow you to appreciate it more and you will want to create multiple streams of income.
Step 2 – Keep the money. Create a saving account and emergency fund.
Step 3 – Manage your expenses well. Spend less than your income. Start with essentials to pay, and then keep yourself space to enjoy your spending too.
The above chart is budgeting in a nutshell.
So let’s see what is the most profitable and financially beneficial type of personal budget:
2. Financial literacy improved by creating wealth
What is actually wealth creation?
You may ask how to get beyond budgeting if this is your goal in life.
Wealth creation refers tobuilding and accumulating physical assets or using financial products that will generate wealth through the 2 main methods. You will own the asset or you will loan the asset.
Ownership of asset that actually generates and creates cash for you. The most used and profitable types of ownership are:
- ownership of shares of publicly listed companies or
- renting properties.
Loaning comes to the actual cash provision for interest received by you.
Above this mean, the investment and a loan provision are parts to add, if you want to grow your financial freedom further.
Before you invest or start to run your own business, get the emergency fund as cash available immediately if some unexpected situation happens. You don’t touch this money only during emergencies.
Rather try to top it up as much as possible. How much it will be, depends on your level of comfort and risk tolerance. I would suggest having at least 6-10 months of your expenses in cash, just in case.
Wealth creation goes beyond just cash generation.
The main principles here are:
- you have already learned how to make cash
- you convert your cash into an asset
- the asset is the cash-generating asset
- you will receive more cash from your asset
- invest your cash
- keep your cash in savings for emergency access
- repeat the process again and again
So what is the asset you can start looking at?
Here are the types of assets:
- physical asset – properties, buying private businesses, owning shares of publicly listed companies, physical products, furniture, cars, equipment
- digital asset/non-tangible asset – digital online store, Blog, Youtube channel, digital products, kow-how, patents
Conclusion
Just to sum it up and ease a bit all rules above, there isno need to manage each penny. Get beyond and above the money, by learning how to manage them, and telling them where they go. Instead of money telling you where you go.
Furthermore, be realistic about your spending.
Otherwise,the budget will lose its purpose. I am sure that you get my point here.
See also now:Planners for life and finance
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