Financial Literacy isn’t something that is taught in schools. Basically, it is understanding money, taxes, interests, bills, savings, investments, retirement and how it works. The general idea here is how to survive on your income without becoming broke so you can call yourself a financially responsible millennial.
According to National Endowment for Financial Education only 24% of the millennials are financially literate. Admit it or not, sometimes we all have trouble keeping our finances in order. And this particular reason is one of the number one source of stress and frustrations among millennials.
How to avoid that? Well, I’m Breaking it down to 5 key points on how to be more responsible.
Accounting every single purchase that we make is something we are too lazy to do. But it is important to keep track of the things you spend on whether it is paying your bills, groceries, cravings for french fries or milk teas etc. Put it on a spreadsheet and categorize them to make it more organized.
List it all down and determine which category eats up most of your money. Prioritize which ones are really important and which ones are not so important. If you are too lazy to do it on a spreadsheet manually, there are tons of helpful budgeting apps like Money or Money Lover.
One of the best and simplest budgeting plan that so far worked for me and countless other people is the 50 30 20 method. Basically, the numbers represent the percentage of your income and where it will go. 50% on bills and daily expenses, 30% for leisure or other luxuries you want and 20% go to your savings.
Now, if 50 30 20 is not enough. You can simply just split the sections into 40 20 10 10 if you like. What’s important is you have a clear goal on where your money is supposed to go rather than just deciding head on when you have the money in your pocket.
Most of us don’t have this. So when shit suddenly happens like an emergency or something, we are unprepared. It is important to have one especially if you have plans investing, starting your own business or anything that is risky. Trust me, you’ll be thankful that you are able to withdraw from an emergency fund to keep you alive.
Open a bank account and commit to saving at least 10-20 percent of your income monthly. No matter how little, at least you have something small that gradually builds up every single month. Do not withdraw it unless it is actually an emergency.
Millennials love having a good time and rewarding themselves after work. It can be daily cravings of milk teas or starbucks, it can be a SALE at the mall or a 50% off at your favorite store.
Imagine if you spend 120 pesos for a milk tea every single day that’s already 840 pesos a week. You could have bought a new shirt with that price. In a month you’d be spending 3,360 pesos already.
Every cent counts. Do not underestimate the small things that you spend on.
One of the biggest mistakes a millennial can commit is getting a credit card and succumbing to temptation. I know that it feels so good to have a little card to swipe and done! Paid. You don’t even need to carry cash.
A credit card can be good and helpful as long as you pay full in time. It will help you build a good credit history that will eventually help you get a higher credit limit and lower interest rates. Plus having a credit card offers better benefits, perks, and awards.
However, if you don’t pay in time, the interests grow. The longer you keep it waiting, the bigger it gets until you find yourself drowning. So if you are going to get a credit card, make sure that you have the urge to control yourself and be responsible enough to pay in time.
Another thing that millennials may be doing wrong is focusing on liabilities rather than gaining assets. Now, what is a liability and what is an asset?
In layman’s term, an asset is something that you own. Something that will eventually help generate cash flow. While liability is more of an obligation. Think of assets as debit and liabilities as credit.
Most common examples of assets are stocks, real estate that you rent out for other people, an online shop, basically anything that contributes money for you.
And the most common example of a liability is a car. I know that getting a car is something that most millennials would want to get their hands on as soon as they started working. But having a car means paying for gas, paying for maintainances and repairs. If you want to get your own car, ask yourself, am I ready to have one?
Focus on building assets before liabilities and not the other way around. But of course getting an asset won’t mean easy money. You have to wait for it to become productive. If it comes to that point, this where you should start taking the profit you get from your assets to spend for your liabilities.
Rich people acquire assets. The poor and the middle class acquire liabilities that they think are assets.
— Robert Kiyosaki
Schools don’t usually teach a course Financial Literacy 101 this is why where most adults enter adulthood, they have no clue on what on earth they are doing. But thanks to the Internet, we can all gather information to learn more about it. Not to mention financial gurus and their bestseller books teaching you on how to be more responsible about your money.
But most of them talked about the same thing. I’m sure that most of you already have heard of these tips and pieces of advice. And it is up to you whether you will follow it or not.