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Financial Literacy for Beginners – Your Guide to Financial Success

Financial Literacy for Beginners – Your Guide to Financial Success

The importance of financial literacy can be highlighted with the current situation of the majority of adults. Right now, half of Canadians and Americans live paycheck to paycheck. There are over one trillion dollars in credit card debt in the US, and $13.8 trillion in total debts including mortgage, car loans, student loans and lines of credit. In Canada, average credit card debt for a household is over $70,000.00 with an overall consumer debt of $1.9 trillion in the first quarter of 2019.

When it comes to savings, the picture is not looking good either. In the US, about 22% of adults have less than $5,000 saved for retirement and 46% expect to work past the retirement age. 32% of Canadians between 45 to 60 years old have no retirement savings either. There is a looming retirement crisis in the near future.

We need basic financial education in order to build a good financial foundation for us and our family. When it comes to becoming financially stable, money is not just the key component in acquiring wealth.

How do we acquire wealth?

Importance of Saving

I am part of the statistics with too much debt and little to no savings. Every single time I get approached about starting a retirement fund, I always use the excuse that I am barely living on what I earn and there is simply nothing extra to be set aside for retirement. As I get older and retirement seems to be not too far off, the realization hit hard that I need to start focusing on my financial health.

The truth is it takes money to make more money. Somehow I was convinced to start my savings fund. I tracked my expenses and savings accounts. I opened a retirement fund account and hesitantly started putting in just $25 a month. After a couple of months, I realized that I really did not miss that $25 being taken from my chequing account and I want to see my fund grow faster so I increased my contribution to $100 monthly. It took me a couple of months to adjust to the decreased spending money on had, but I was able to adjust. I decided to increase it by a bit again. I am nowhere near what I should have saved at my age already, but I am slowly building my savings for when I retire.

How to get out of debt?

Debt is the other four-letter word that no one wants to talk about. Even husbands and wives don’t talk about their individual debts to each other. It seems to be a taboo subject among friends as well. How do we get out of debt when we are already living paycheck to paycheck, as most working adults do?

First and foremost, you need to know the total debt you have accumulated. List down all the credit cards, you have and the balance each of them carries. Write beside it the interest rate you are being charged. Now you have two options: pay off the card with the lowest balance first, or the card with the highest interest rate. While paying off your debt, try to look into your expenses as well and identify which ones are your “needs”, “likes”, and “wants”. Your needs will be your priority, and minimize or eliminate spending for the likes and wants. These “likes” and “wants” are most likely what racked up your credit card balance.

What is a solid financial foundation?

Saving money and paying off your debt is part of having a solid financial foundation. But the most important of which is your insurance. Are you and your family properly protected from death, illness, accident, or losing your job? You can start saving money but if any of these happen to you, all you or your family will have left is the balance of your savings account.

Here are the items you need to have covered in order to have a strong solid foundation, based on its importance:

  1. Protection
  2. Paying off debt, or debt management
  3. Having an emergency fund
  4. Investment

Proper Protection

Another thing that gets to be the least in priority is insurance, be it to protect your life, for critical illness or disability. We don’t mind paying hundreds of dollars towards our car insurance, but we tend to take the cheapest and lowest coverage for our own protection. Some people also think that they don’t need life insurance because they are still young and healthy. But it is at this moment when it is ideal to get started.

When you wait until you are no longer healthy, then you either become uninsurable or your cost of insurance becomes too high. There are different kinds of life insurance and the most affordable of them in the short term is Term Insurance. If you really can’t afford to get permanent insurance because you are still dealing with paying off debts, then term insurance is the second-best thing. This guarantees you to permanent coverage later on, as long as your term insurance contract is both renewable and convertible to permanent insurance. You can get covered by a 10-year term for as low as one fast food meal per month, depending on your age and smoking status.

Emergency Fund

All the financial journals, advisers, and companies advise setting aside at least three months of living cost for your emergency fund. There are guides online on how to save up to $5,000 a year. This will help you with your living expenses for the next three months in case of sickness, job loss, or other calamities. You can make use of an investment account, or just your regular savings account. Regardless of where you keep your emergency fund, this should be accessible to you when the time arises. You can’t put your fund in a locked-in investment if it is intended for emergency use since you don’t know when this emergency might occur. You may end up not using it at all, which is always great. The important thing is that you have it in case you need it.

By following these steps and/or suggestions, you will be on your way to having a solid financial foundation.

10 Comments

Phil Posted on9:31 am - December 9, 2019

Hi Leslie,

Yes, I agree with this article. I tend to spend all my cash on pay day very shortly thereafter. I don’t really think about savings anymore and so I do need to get back into the habit and generally increase my financial literacy as I have turned into a beginner.

This is particularly bad for me as I worked my teenage years away and sadly there is nothing from all those years. I saved it all though but eventually spent it long after I really needed it saved. I only spent some money now and again on the cinema etc, as I lived at home at the time.

So I am bookmarking your site for further tips because blowing your cash is not good especially when emergencies arrive, and they always arrive when you are embarrassingly broke.

Thanks, Leslie 🙂 .

Regards, Philip.

    Leslie Posted on11:37 pm - December 9, 2019

    I am happy to hear that you are interested in learning more. This topic is very dear to me since I saw myself in dire need of help and information as well. Let us have this journey to financial freedom together.

Alex Posted on10:05 am - December 9, 2019

Thank you for the inspiring article Leslie!
I have to admit I suck at this, and I have been trying to correct this for years. I had a few good years when I was earning way over the average, but I “was managing” to spend all my earnings. The single wise move I made was to get a private life insurance – I have to pay a monthly contribution and I can’t touch that money.
I also invested in stocks, but I used most of the accumulated money to get a bike…
I now have 2 daughters so the monthly bills went a LOT higher, and I ended up biting into the credit card. I don’t have a huge debt yet, but I definitely feel it’s pressure and I know I have to get rid of it. I try to pay way more than the minimum monthly payment, but it is often I get to charge the credit card again at the end of the month as I run out of money and I still have to cover different costs 🙁 Do you have any suggestions on how to get out of this spiral?

    Leslie Posted on11:35 pm - December 9, 2019

    Thank you for your comment Alex. What I did was take out all my credit card bills and separated the necessary from the rest. You will be surprised at what you will find: how a ritual of getting your morning coffee instead of brewing your own, or eating out multiple times in a month, and a lot of other unnecessary expenses adds up. For me, it was buying all the cake decorating materials and tools that really add up big time, and I don’t really use them. Once you have determined the expenses you can get away with, add them up and make sure to put that amount into paying off more of your credit card balance. Best of luck to you.

Steve Posted on6:04 pm - December 9, 2019

This has a lot of information. I would like it if you can go in to more detail regarding topics on how to get out of debt especially if you are already living paycheck to paycheck.

    Leslie Posted on11:30 pm - December 9, 2019

    Thank you for your comment. I will definitely be writing about that.

Satz Posted on12:54 am - December 10, 2019

Hi Leslie,

I can connect with you article and completely agree that financial prudence and saving regularly helps not just to clear debts but also building wealth over long term. Few years ago i got into debt trap as I had credit card debts and personal loans. Then I followed the advice of Dave Ramsey’s debt snowball method wherein he advice’s to start paying off the loan with least EMI with all your surplus and then look at the next one till you complete your list. I had almost six unsecured loans which i cleared in the last 3 years.

    Leslie Posted on1:23 am - December 10, 2019

    That is awesome to hear! Clearing all our debts does take a lot of discipline and we need to go away from our old spending ways. I am happy that you are debt-free. A lot of people are dreaming of that. Kudos to your hard work.

Mohammad Posted on10:11 am - December 10, 2019

Hi Leslie,

I was searching for a post like this for a long time! I am drowning in debt but my case is a bit different than normal. My debt is direct with other people, I am not the best in organizing my financial life and this post is perfect for me. But, when you explained how to get out of debt, it was a perfect way for people who have such debt with banks or something like that, in my case I took money from people, not a bank and without interest (lucky me) to pay for my medical school, so I wanted to ask if there is a way to manage that thing! I am barely earning money enough for life now (actually less!) So do you have any advice for me?

Also, I have another question about the emergency fund, I always keep a small share from my money for emergencies but it is not really that much, so how do you suggest me to do that? You mentioned it is best to be set aside at least three months of living cost for your emergency fund.

Thank you for this useful post!

    Leslie Posted on12:35 am - December 11, 2019

    Thank you for your comment. I know it is tough for a lot of people right now, especially when you are barely making ends meet and have accumulated quite an amount of debt. Your case is unique since you don’t owe financial institutions, but probably family and friends to help you with your medical school. I suggest starting paying off the smallest amount of debt and move on to the next. You will feel accomplished when you get to pay off one of the debts you currently have.

    As for saving up for your emergency fund, every little bit counts. Three months is the suggested amount, but whatever you have saved is still better than have nothing at all.

    Try to take a closer look at your monthly expenses. You might find things that you can live without for the meantime and put that amount into paying your debt or adding to your emergency fund. If you have free time, you can also add a side hustle: like a part-time job while studying. There is a lot of work from home opportunities right now and I hope you can find one that will not take too much time from your studies.

    Best of luck to you.

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