Ways to Gain Financial LiteracyFinancial know-how does not come naturally to everyone. Teenagers especially, are quite grim about how to manage finances really well. Both men and women are equally bad at managing finances and there is no easy way for them to learn it when asked about it in a poll.
Here are 5 ways to easily gain financial literacy:1. Differentiate Between Your Needs and Wants
A lot of people are involved in impulsive purchasing which is why they spend too much money. Such people would do great if they were able to differentiate between their needs and wants. Before you go out shopping, prepare a list of items that you actually need to avoid falling to the temptation of buying everything you come across in supermarkets.
People need to realize that there's a limit to every other resource they can access. Many think that purchasing through credit cards will help them get everything they want and they can pay for it later. People forget that firstly their credit purchases are limited to a certain extent. And secondly, they will have to pay it back in time or the bank will charge interest, which means paying back even more money.3. Everything Has Its Own Opportunity Cost
It is absolutely true that everything has an opportunity cost. For example, we have to give up on something to get something else. If you decide to enrol for a course, you must give up the salary you have earned.
Sunk costs are expenses already incurred and cannot be recouped further favourably. Often people believe that investing money, effort or time after sunk costs will recover the disappeared value after some time which is absolutely wrong. If you have lost your money in shares, sell them and recover the money instead of waiting for the market to strike back.
(Read-Five Untrue Money Myths)5. Benefit from the Time Value of Money
We all have heard of "a bird in the hand is better than two in the bush". This advice means that if you have been able to save considerable sums of money, it would be useless to stash it in your bank account since time value of money would not give you appreciated benefits. Instead, invest that money into a profitable investment vehicle. It is better to go for something that has a stable past record. Later, you can recoup your money and invest a larger amount into useful expenditures such as a private business, your children's college fees, or paying off medical bills or home mortgage.
These are some of the most useful tips to gain financial literacy that everyone must know. You will always need them to take better and more prudent decisions during all stages of your life.
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