It’s the beginning of a new month, and you’ve just gotten paid last Friday, but there’s a feeling of concern and fear that consumes you. You’re asking yourself, “Where did my money go?” or “How many more days until it’s payday again?” Many of us have had this experience at least once before in our lives. And many times, it may have occurred because of poor decision-making linked to a lack of financial literacy.
Financial literacy. It’s a term you may or may not have heard tossed around in conversation. Investopedia defines financial literacy as “the ability to understand and effectively apply various financial skills, including personal financial management, budgeting, and investing.” (Kenton 2020). To put it in layman’s terms, it’s the ability to understand money and the decisions surrounding it.
In today’s capitalist-society I believe that financial literacy is more important than regular literacy. I’ve met persons with little formal education, but a basic level of financial literacy, and they have had comfortable lifestyles. I’ve also come to know many traditionally “successful” people that have multiple university degrees, but struggle month to month because they lack basic financial knowledge. These two groups of people and their significantly different lifestyles have helped me to identify a formula that is the foundational theme of this blog:
The formula above illustrates that financial literacy equates to financial freedom, and that money is the tool used to bridge one side of the equation to the next. Financial Freedom means you are not a slave to money, but that money works for you. This can only be accomplished through focusing on the attributes that make up the formula Assets - Liabilities = Equity. In increasing our assets and decreasing our liabilities, our equity (or overall net worth) is strengthened. This net worth is what determines the level of wealth we have obtained, and thus our level of financial freedom.
What are some ways to achieve that financial freedom? Below are pivotal tools to use:
Earn a higher salary
Budgeting – involves examining your monthly expenditures and incomes
Investing – In financial instruments, real estate or yourself (entrepreneurship)
My goal throughout this blog is to provide a simple guide to understanding how money works and how to make critical decisions that can earn you the freedom we all dream about. I will also identify some of the common mistakes that are made and mistruths we may have been taught early on in our lives. With assistance from a few colleagues, I hope to be your guide in navigating the complexities surrounding money and presenting the simple and clear truths.
Until next time.
Note: This blog reflects my opinions and is for informational and/or entertainment purposes only. This blog does not reflect the opinions of any organisations with whom I am affiliated. This blog is not intended to serve as a substitute to professional financial advice and guidance. As such, if the reader places any reliance on this blog, he/she alone accepts all risks and damages. Although I am a licensed accountant, please schedule a formal meeting with a financial professional before taking any actions. I reserve the right to change the focus or content of this blog at any time.
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