Five Tips for Improving Your Financial Literacy
What’s the difference between good debt and bad debt? What does inflation mean for you? When the Reserve Bank puts up the cash rate, does that just affect your mortgage, or does it flow on to other parts of the economy as well?
If you don’t know the answers to these questions, you aren’t alone.
Only 50% of men and 35% of women could answer all the questions about money and finance correctly in the 2019 Household, Income and Labour Dynamics in Australia (HILDA) Survey.
By living in a market economy, we all need to have a good grasp on finance and economics – and it may become crucial in the future.
If you aren’t particularly knowledgeable in finance, here are five tips for improving your financial literacy.
Planning a budget
If you’ve never planned a budget for your household before, you’re lucky you’re living in the age of smartphones! To begin, you need to see how much money comes in each month, how much goes out, where you owe debts to, where your investments are – and your NetBank app can help you figure this out. You also need to see how much you spend in certain categories such as groceries, entertainment, transport, schooling, etc.
By identifying how much goes out, you can set limits on luxuries, change utilities providers for cheaper alternatives, and get rid of subscriptions you aren’t using. That means you can redirect your spending to paying off debts, saving, or investing in yourself.
Checking your credit score
Do you know your credit score? A credit score is a score out of 1200 (or 1000) that shows lenders and banks your creditworthiness – how likely you are to pay back a loan in full.
The higher your score, the more lenders will pass on savings to you in terms of interest rates. If your credit score is poor, you’ll find it harder to get credit. This doesn’t just mean loans – this also means credit cards, phone plans, and anything that requires a credit check. Knowing your credit score means you can take steps to improve it. You can check it once per year for free – find out how at the Office of the Information Commissioner.
Consolidating your debts
If you are struggling paying off small, high-interest credit cards, you should consider consolidating your debts. This is a personal loan that rolls these balances into loan so you can make one simple payment each month. You’ll need to compare available personal loans options first, so you can get a good deal – or approach a broker to help you. It not only helps your finances but can also boost your credit score over time.
Setting savings goals
What are you saving for? Retirement? A holiday? A wedding? A house? A rainy day? An emergency fund is always good – but saving for the sake of it means building up a nest egg that could be better used in the share market or investing in business. Setting savings goals gives you incentive to save – financial literacy means financial freedom, not financial boredom!
Seeing a financial adviser
According to a Savvy survey on financial literacy, 83.9% of Australian respondents said they’d never seen a financial adviser. This is worrying, as a financial adviser is a goldmine of knowledge about finance and economics. They can help you with all of the above, as well as explain complex financial and economic concepts in simple to understand terms. They can also help you plan your wealth for growth once you’ve cleared your debts. They are as invaluable to your financial health as doctors are to your physical health!