5 Components of Financial Literacy

Wow, 2021 is already off to a fast start. We are in the month of April and guess what it is??? It’s National Financial Literacy Month. National Financial Literacy Month was recognized in the United States in April 2004, in an effort to highlight the importance of financial literacy and to teach citizens how to establish and maintain healthy financial habits.

There are five (5) core components of financial literacy: Earning, Saving, Investing, Spending, Borrowing, and Protecting. As you make financial decisions each and every day, you should use these five components for managing and growing your finances.

  • Earning: refers to income resources you bring in.
  • Saving: paying yourself first, emergency funds, sinking funds, etc.
  • Investing: compound interest, growing your money for the long term growth.
  • Spending: needs vs wants (essentials vs non-essentials)
  • Borrowing: utilization and managment of credit.
  • Protecting: health, life, disability, car, homeowners, flood, renters, and business insurance; ID theft, retirement planning, living well, estating planning, etc.

If we have learned anything from this pandemic, it should have definitely taught us to be prepared for the unknown. This pandemic has affected everyone and has stopped us in our tracks. I remember sitting at my desk at work in 2016. I may have been listening to a podcast, and I clearly heard God say get your finances in order because something major is going to happen in the next few years. As each year would pass, this feeling would be very intense and heavy on me. Little did I know we would be here in 2021 still in a pandemic and slowly trying to get back to our normal lives. One thing I am grateful for is listening to my inner man telling me to take control of my finances because it definitely has put me in a better position financially.

Financial Literacy is important because it gives us the knowledge and skills to be able to manage our finances effectively and to make better financial decisions. Financial Literacy is the ability to know how to manage your financial resources. Financial Education is the ability to understand how financial resources work. 

According to statistics, nearly all Americans don’t expect to have enough money to retire comfortably. Credit card debt has reached its highest point ever.  Forty percent of Americans can’t afford a $400 emergency expense. Nearly two-thirds of Americans can’t pass a basic test of financial literacy. Based on these statistics, this is why financial literacy is very important and why we should focus our attention on becoming financially AWARE.

If you want to get started with becoming financial literate you can do the following:

  • Read personal finance books.
  • Listen to a podcast about personal finance.
  • Take a financial literacy or personal finance class online.
  • Read articles or blogs on personal finance.
  • Follow accounts on social media in personal finance.
  • Watch YouTube videos.

You can start taking control of your finance by doing the following:

  • Get your bills organized by due dates.
  • Create a budget or spending plan for your money.
  • Save a $1000 emergency fund.
  • Pay off debt.
  • Save 3-6 months of monthly living expenses.
  • Check your credit report for errors and dispute them.
  • Start investing for retirement.

With so much uncertainty, what better time than now to put yourself in a better financial situation. Don’t just live for today but plan for tomorrow. Your family is depending on you. So, make the decision today to change the trajectory of your family’s financial legacy by taking control of your finances. When you take control of your finances, you are controlling your life instead of letting your life control you. Being in control of your life gives you better choices and options.

What financial goals are trying to achieve? Have you made a detailed plan to execute these goals? The only way to fail is by failing to plan. A plan is like a GPS; it gives you directions to your destination. It also helps you stay on the right path to achieving your financial goals. 

Let this month of April and the 2nd quarter of this year be the start of you taking control of your finances to achieve your 2021 financial goals. Don’t put it off for tomorrow when you can start today.

If you like to learn more about financial literacy and personal finance, please go to www.awareconsultingfirm.com for more information or contact us info@awareconsultingfirm.com for more information.

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