5 Skills You Need to Become Financially Savvy
Being financially savvy can save you from becoming a part of the big rat race. It can help you lead a meaningful life, where you'll find yourself free from debts, interest rates, and a chained lifestyle.
With the right financial habits, you'll find yourself led by your will instead of your needs. And this is what this blog post will teach you today.
Here are five skills you need to become financially savvy.
Self-awareness is the key to a growth mindset. It saves you from living your life on a loop and repeating the same mistakes over and over.
How so? Well, self-awareness gives you an insight into how you function. It gives you a command over your strengths and weaknesses. And in this way, it also gives you an opportunity to change how you deal with things.
In terms of finances, self-awareness refers to one's knowledge of their current financial assets, spending habits, and liabilities.
For example, let's say you know you spend excessively when stressed. In this case, you can use apps or browser plug-ins to block online shopping sites when you feel stressed. And you can unblock these sites when you become calm again. Similarly, you can avoid keeping extra cash when heading out if you tend to spend it carelessly.
Along the same lines, self-awareness can also help identify the financial aspects of your life you need to work on the most.
These may include:
- Increasing your streams of income
- Stabilizing your income
- Paying off debts
Once you know what you've to work on, you'll find yourself consistently keeping a track of it and finding ways to improve.
2. Strategic Refinancing
Loans and debts can negatively impact your credit score, particularly if you fail to manage them responsibly. And a negative credit score is equivalent to zero external financial help in times of need. You may face trouble when buying a house, hunting for a job, or simply acquiring a temporary loan.
Now, it would be ideal if you could avoid loans and debts in the first place. But if that’s not possible, we recommend working on your refinancing skills.
8 in 10 people are under some sort of debt. So, your chances of avoiding a loan in the first place are very low.
Refinancing refers to changing the terms of an existing credit agreement — usually a loan or mortgage — to acquire a lower interest rate and reduced balance amount.
The four types of refinancing include:
- Rate and term refinancing
- Cash-out refinancing
- Cash-in refinancing
- Consolidation refinancing
All four of them differ in terms of what you can do and what you cannot. And although there's no waiting time for refinancing, you do have to fulfill some basic requirements.
These include having a decent credit score, sufficient equity, and sufficient income. All of these take skills of their own to achieve, so you might want to work on them.
It's best to have a finance professional guide you on how much you can save by refinancing. If you need an idea to get started, you can use this refinance calculator from Homestar Finance.
Budgeting is the quickest and smartest skill you can learn to become financially savvy. It's easy to learn and implement — the only requirement being your will.
Technically, budgeting refers to a proactive approach to managing your financial assets. It ensures that you have the money to meet your needs at all times, and it keeps you out of debt. In case you're already indebted, a budget plan can help you get rid of this loan quickly and systematically.
Here's a comprehensive guide on how to manage money and formulate an effective budget plan. Browse through, take notes, and get started today!
It's not a good idea to wait for the next month to begin budgeting. You'll end up spending more, knowing you'll be limiting yourself next month.
So, start today.
Not everything goes as planned, so it’s a good idea to always keep yourself mentally prepared for unforeseen circumstances.
Apart from mental and emotional prep to endure financial loss, we recommend taking actionable precautionary measures, i.e., plan B (just in case things run out of hands).
The four types of financial risks are:
- Income Risk
- Expense Risk
- Asset/Investment Risk
- Debit/Credit Risk
For each of these, we recommend you evaluate its probability in your life and sketch out a backup plan accordingly.
For example, your income risks may include unemployment or death. To deal with unemployment, you should work on having multiple streams of income while you have a job.
Similarly, death may be a risk factor for you if someone depends on you for a living. In this case, your investment in shares and assets (property, gold, etc.) should be your plan B. You can learn more about financial risks and effective ways of dealing with them here.
Most people are risk-averse when it comes to investing. They don't like their money to be in danger, even if they'll make a great profit by taking that 'risk'.
But the truth is, you're already exposed to multiple financial risks just living your life. So, why not stack the odds in your favor and take calculated risks that have the potential to make you rich?
Investing is the process of allocating resources with the expectation of generating income or appreciation. It usually refers to buying assets such as stocks, bonds, real estate, or cryptocurrency with the aim of growing your money.
Although this topic would take a blog post of its own, here is what you can do to get started with investing:
Research different investment options to find out which ones align best with your risk tolerance and financial goals.
Set short, medium and long term goals for your investments, and work on creating a plan to achieve them.
Start investing as soon as possible — the earlier you begin, the more time your money will have to grow.
As you gain experience, continue learning and refining your investment strategy to maximize your returns.
And that’s a wrap, folks!
Remember, becoming financially savvy isn't a difficult task if you put in the effort and make smart decisions along the way. With these five key skills as a foundation, you can take charge of your financial future and build long-term wealth. Good luck!