The world of finance can be confusing to an “outsider,” especially when it comes to understanding the lingo. The technical jargon can be so overwhelming that it pushes people to give up trying to understand the basics, which can lead to procrastination and poor decision-making.
If you are feeling overwhelmed or confused by it all, here are 6 key aspects that can jumpstart your journey to financial literacy.
1. Basics of Financial Planning
Mastering financial, economic, and cash flow/debt management concepts is a great first step. Ask yourself: What do I own? How do I own it? What do I earn? What do I owe? By answering these simple questions, you are starting to build an understanding of your financial status.
2. Investment Planning
Investment planning is all about making your money work for you. Work with a trusted advisor who can help you build a diversified portfolio, manage your risks, and include a variety of investment vehicles.
3. Retirement Savings and Income Planning
Setting money aside today—delayed gratification—will allow you to have more choices in the future. A well-performing retirement fund needs consistent analysis, an evaluation of plans, and an understanding of Social Security, Medicare, and Medicaid.
4. Tax and Estate Planning
Understanding laws and management techniques related to taxes, property transfer, and estate planning can help you accomplish current and future financial goals.
5. Risk Management & Insurance Planning
Evaluating risk and assessing different types of insurance can help you protect your family, decreasing your anxiety about what may happen in the future.
6. Psychology of Financial Planning
When making financial decisions, never underestimate the power of fear and greed. Assess your feelings and behavior, then adjust accordingly.
How can MAI advisors help you understand this process more completely?
- A financial advisor can help you develop a clear picture of your current financial status by reviewing income, assets, and liabilities and by evaluating your insurance coverage, investment portfolio, tax exposure, and estate plan.
- Our advisors work with clients to establish individualized, prioritized financial goals and time frames for achieving them.
- We implement strategies that address current financial weaknesses and build on strengths.
- We can utilize solutions and services that are tailored to help you meet your goals.
- MAI advisors monitor your plan and make necessary adjustments as goals, time frames, and circ*mstances change.
Authored by Mark Van Drunen, CFP®, Regional President and Managing Director, MAI Capital Management | Information updated as of 03.28.2023.
Please send your questions, comments, and feedback to: info@mai.capital. The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circ*mstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.
FAQs
Conclusion. In conclusion, a financial plan is essential for freelancers to ensure they can meet their financial goals and protect their assets and income. The six components of a financial plan include tracking income and expenses, budgeting, saving and investing, insurance, and retirement planning.
What are the 6 components of financial literacy? ›
Here are six core financial literacy categories to help take your money skills to the next level.
- Know What You Earn. ...
- Spend With Purpose. ...
- Save and Invest For Your Future. ...
- Borrow Wisely. ...
- Give Generously. ...
- Protect Your Wealth Long-Term.
Strategies of financial management
- Analyze financial statements. Regular evaluation of financial statements is an important step to take when determining financial strategies. ...
- Evaluate profits and losses. ...
- Create and monitor budgets. ...
- Monitor debtors. ...
- Update and safeguard records. ...
- Track your expenses in real-time.
Conclusion. In conclusion, a financial plan is essential for freelancers to ensure they can meet their financial goals and protect their assets and income. The six components of a financial plan include tracking income and expenses, budgeting, saving and investing, insurance, and retirement planning.
What is the six of financial management? ›
Financial planning process The financial planning process is a logical, six-step procedure:8 • determining the current financial situation, • developing financial goals, • identifying alternative courses of actions, • evaluating alternatives, • creating and implementing a financial action plan, • reevaluating and ...
What are the aspects of financial literacy? ›
Financial literacy involves concepts like budgeting, building and improving credit, saving, borrowing and repaying debt, and investing. Becoming more financially literate might make financial decisions related to loans, major purchases and investments less daunting.
What are the key points of financial literacy? ›
6 Key Aspects of Financial Literacy
- Basics of Financial Planning. Mastering financial, economic, and cash flow/debt management concepts is a great first step. ...
- Investment Planning. ...
- Retirement Savings and Income Planning. ...
- Tax and Estate Planning. ...
- Risk Management & Insurance Planning. ...
- Psychology of Financial Planning.
The Financial Planning Process
- Step 1: Set Goals. While this seems pretty basic, this step often gets overlooked. ...
- Step 2: Gather facts. ...
- Step 3: Identify challenges and opportunities. ...
- Step 4: Develop your plan. ...
- Step 5: Implement your plan. ...
- Step 6: Follow up and review yearly.
Most financial management plans will break them down into four elements commonly recognised in financial management. These four elements are planning, controlling, organising & directing, and decision making. With a structure and plan that follows this, a business may find that it isn't as overwhelming as it seems.
What are the elements of financial management? ›
The 4 elements of the financial management are:
- Planning.
- Organising.
- Controlling.
- Directing.
The six principles of finance include (1) Money has a time value, (2) Higher returns are expected for taking on more risk, (3) Diversification of investments can reduce risk, (4) Financial markets are efficient in pricing securities, (5) Manager and stockholder objectives may differ, and (6) Reputation matters.
What are the 7 key components of financial planning? ›
A good financial plan contains seven key components:
- Budgeting and taxes.
- Managing liquidity, or ready access to cash.
- Financing large purchases.
- Managing your risk.
- Investing your money.
- Planning for retirement and the transfer of your wealth.
- Communication and record keeping.
The major elements of the financial statements (i.e., assets, liabilities, fund balance/net assets, revenues, expenditures, and expenses) are discussed below, including the proper accounting treatments and disclosure requirements.
What does six financial information do? ›
SIX consolidates, normalizes and enriches financial data covering more than 30 million instruments from more than 1,800 sources around the world. The SIX database covers a range of asset classes and legal entities, delivering price snapshots and detailed funds data for portfolio and fund managers.
What are the six steps to managing personal assets? ›
The following six steps can help you navigate your financial future.
- Step 1: Manage your money well.
- Step 2: Increase your income.
- Step 3: Invest your money wisely.
- Step 4: Bring all the pieces together.
- Step 5: Preserve your wealth.
- Step 6: Estate and trust considerations.
An optimal capital structure is the best mix of debt and equity financing that maximizes a company's market value while minimizing its cost of capital. Minimizing the weighted average cost of capital (WACC) is one way to optimize for the lowest cost mix of financing.
What are the three C's in financial literacy? ›
Character, capital (or collateral), and capacity make up the three C's of credit. Credit history, sufficient finances for repayment, and collateral are all factors in establishing credit. A person's character is based on their ability to pay their bills on time, which includes their past payments.
What are the 5 financial literacy questions? ›
Financial Literacy Test
- How much money should you put into savings every month? ...
- How much of your income should be used on monthly credit card payments? ...
- What's the maximum debt-to-income ratio a person can have and still qualify for a mortgage? ...
- How often can you check your credit report for free?
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
What are the 5 components of information literacy? ›
What is information literacy? The term "information literacy" describes a set of abilities that enables an individual to acquire, evaluate, and use information. You can think of information literacy as having five components: identify, find, evaluate, apply, and acknowledge sources of information.
