The 5 Principles of Financial Literacy (2024)

Financial Literacy. Do these words sound familiar? Perhaps some influencer on your FYP or some book in your local bookstore with this title?

What is Financial Literacy?

Financial literacy is knowledge that empowers you to be in control of your financial well-being and build a secure future. The five principles of financial literacy enable you to use money wisely, make informed decisions about your finances, create budgets, manage debt, and plan your financial future.

The 5 Principles of Financial Literacy

There are five principles of financial literacy:

Earning
Budgeting
Saving and investing
Borrowing and managing your debt
Spending and planning

Earning

Your income is the foundation of your finances. It is the basis for your lifestyle and your financial future.

Implementing the Principle

Learn to live within your means and pay for your lifestyle without excessive debt.
Avoid falling into the trap of lifestyle Inflation.
Manage your income and workplace benefits.
Find ways to put aside portions of your income for the future.
Have you considered any pension plans provided by your government, Employer, or private funds?
Have you ever invested in the programs offered by banks?

Budgeting

Budgeting is the process of creating a plan to spend your money. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. Budgeting is simply balancing your expenses with your income.

Your budget will be based on your circ*mstances, as no two people are living the same life.

Are you living by yourself and covering all your expenses?
Are you a parent who is responsible for your family?
Do you have any urgent financial responsibilities like Medical bills/Loans/Ailing parents?
Do you have any financially heavy goals that you want to achieve shortly?When you get your paycheck, consider following the 50-30-20 budgetNeeds – spend 50% of your monthly incomeUnder the 50/30/20 budgeting strategy, the majority of your income should go to paying for your needs. No, I am not talking about your morning Starbucks or even your Netflix subscription! Needs are the living expenses that are essential for your survival – accommodation costs (rent or mortgage), basic groceries, transport to work, utility bills. If you have debts, the minimum debt repayments also count as a need. This budgeting rule assumes you can cover all of these expenses with 50% of your post-tax income.Wants – spend 30% of your monthly incomeWants are things that enhance your life but that you could live without, and they fall under the second part of the 50/30/20 rule. They include meals out and nights on the town, concerts and sporting events, gym membership, weekends away and holidays, the latest gadgets, designer trainers/handbags/suits, and other luxury spending habits. If it’s not essential to your survival, it’s a want, not a need.

The 5 Principles of Financial Literacy (1)

Savings – dedicate 20% of your Monthly income

First and foremost will be saving for an emergency fund. (More on this in the coming weeks)

Second, Save enough to be able to invest this money or save for retirement/Future goals.

Finally, A budget will only stay put if you refer to your monthly expenses and can track them. Self-awareness and control play a huge part when it comes to financial literacy. Hold yourself accountable for all your planning and its results.

Review your monthly Bank statements to see where most of your money is going. The easiest, free way to maintain a budget is via spreadsheets. Where you can list down, You can also search on your Play Store or app store to find numerous apps that help you in recording your budget.

What are your ways of budgeting your life? How many of you have a monthly budget? Comment below and let us know.

Also, stay tuned for part two.