financial literacy

Jun

2020

Basics of Financial Literacy: What You Need to Know

Reading Time: 2 minutes

The world is now officially on a recession. Businesses went bankrupt and millions of people have lost their jobs. Many people found themselves in deep financial troubles. Although It is impossible to undo the events of the past, it is still possible to improve your financial future through financial literacy. What you need to know for now is the basics of financial literacy.

Whether we like it or not, money is a part of our daily lives. A basic understanding on how money works can help you make wise financial decisions in the future. It will help save you financially when the next big crisis comes. Thus, knowing the basics of financial literacy is a must.

Start your financial literacy journey by reading some life-changing books on wealth and success. It will also help if you familiarize yourself with some basic terms on personal finance. Knowing some of the basic components on financial literacy is also is very important in your financial life.

Basics of Financial Literacy

1. Budgeting

Budgeting is a spending plan. It is allocating a certain amount of money for the things that you need and want. Though budgeting, you will be able to figure out if you have enough money to buy things that you want. It will also allow you to create a plan for your future spending. It is basically weighing in your income vis-a-vis your expenses and trying to create a balance between the two.

A good budgeting technique that you can follow is the money jar budgeting system. This approach allows you to be be able to meet both your needs and wants and at the same time, grow your wealth in the process.

2. Saving

Every financial guru stresses the importance of saving. Savings are the money that is set aside for future use especially during emergencies. It is common sense yet only a handful of people do it. That’s because saving money takes a lot of discipline.

If there is one thing that this crisis taught us, it is the importance of saving. Those who have enough savings will be able to rise above this crisis. Aside from serving as your emergency fund, your savings can also give you freedom. You can use it as downpayment for your dream house. Your savings can also use to buy a new car or to travel to your dream destination. The possibilities are endless.

3. Understanding Debt

Not all debts are created equal. There are good debts and there are bad debts. Understanding what they are and how they differ from one another will help you make good financial decisions when it comes to handling debts.

Almost all people in the world will have to handle debt at one point in their lives, whether it be a mortgage, a car loan, a credit card debt or any other kind of personal loans. Debts can have positive or negative effects on everyone’s lives. Knowing the basics will help people use debts for their own advantage.

There is still a lot to learn but it is definitely worth the time and effort. For now, understanding the basics of financial literacy is a good start towards your journey to improving your financial life for the better.

Feature Image by Steve Buissinne from Pixabay Images

Jun

2020

10 Basic Terms About Personal Finance

Reading Time: 3 minutes

Understanding basic money terms should be your first step towards financial literacy. It would be very difficult to start learning financial literacy, much more overhaul your financial life without understanding the basics. Just like reading for example, you won’t be able to learn how to read without knowing the alphabet. In the same way, you will never truly be able to handle your money if you are not familiar with some basic terms about personal finance.

These terms will serves as building blocks in the world of finance. Hence, a deeper understanding of the many terms of concepts of the financial world is crucial in making good personal financial decisions.

Learning and understanding some basic personal finance vocabulary is your first step towards financial freedom.

There are many important personal finance terms. But to make it easier, we have narrowed down the list to ten terms that will help you understand the basics of personal finance.

Here are 10 basic terms that you should know about personal finance:

1. Assets

Assets are any resources with economic value. Sample assets include certificates of deposits, bonds, funds, stocks, real estate or business.

A new definition was introduced by Robert Kiyosaki, author of Rich Dad, Poor Dad. He redefined assets as economic sources that you own that generate income for you. A

An asset is something that puts money in your pocket.

2. Credit

Credit is an agreement where the borrower receives something usually money or any other product or service with value with a promise to pay in the future within a specific time frame, usually with interest. In short, credit pertains to agreement between borrower and lender. Examples of credits are home loans, car loans, consumer and personal loans and credit cards.

3. Compound Interest

Compound interest is the addition of interest on the principal amount of your loan, savings or investments. In short, it is interest on interest. Thus, it has the capability to grow at an increasing amount. Use this concept to your advantage and your wealth will increase. However, this concept can also work against you especially if you have credit card debts. This is how credit card companies earn. Protect yourself and understand this concept so as not to end up a victim of enormous credit card debt.

4. Depreciation

Depreciation is the lowering of the value of an asset over time, usually because of wear and tear. Depreciable assets in your home include your cars, cellphone, appliances and furnitures. For example, if you bought a car worth million a year ago, you can no longer sell that car for the same price today because the value of the car already went down. That is depreciation. Buying depreciable assets on credit is not recommended.

5. Inflation

Inflation is a finance concept that everyone should know because it affects everybody. When the value of your money declines, that is inflation. It simply means that the same amount of money that you are holding now can purchase less goods compared to last year. So, if you have money placed in a regular savings or current account, you are loosing money every year even if you are not actually withdrawing money from your account because of inflation.

6. Financial Freedom

Financial Freedom is the state wherein you are already living your ideal lifestyle without having to work for money. You can be enjoying yourself somewhere in the Bahamas and yet continue to receive money regularly.

Financial Freedom is achieved when your passive income is greater than your monthly expenses.

7. Liabilities

Liabilities are amount that you owe somebody, a company or the bank. They are your debts and financial obligations. Your liabilities include your bills, home loan, car loan, credit card debts and other consumer and personal loans.

8. Mortgage

A mortgage is a loan in which a property or real estate is used as collateral. A collateral serves as security for the loan. Ownership of the real estate is conditional until all obligations and monthly payments are met. This is your typical housing loan.

You are not the owner of your real estate until you have fully paid your mortgage.

9. Net Worth

Your net worth is the monetary equivalent of all your assets added together minus all your liabilities. In short, your net worth is the value of everything you own minus your debts. It is a gauge to measure your financial well-being or how wealthy you are.

NET WORTH = ASSETS - LIABILITIES

High income does not necessarily mean high net worth. A janitor without debt can be considered more wealthy than a company president whose liabilities are greater than his assets.

10. Passive Income

Passive income is money that you receive on a regular basis with minimal work requirement or without you having to work. This income is generated through your investments or assets.

Examples of passive income are:

rental payments from your real estate properties
dividends and capital appreciation from stocks and funds
interests payments on bonds
royalties
income from investments
retirement income

This is the opposite of earned income wherein you need to work or exchange your time, skills and expertise to earn income. Example of earned income is your salary.

First Published in Pinoy Smart Living on 11.13.2018

Image Credit: Gerd Altmann from Pixabay Images

Jun

2020

The Wind Beneath Your Wings

Reading Time: 2 minutes

Our lives are always undergoing change. Change always brings with it some stress and discomfort. After all, change entails that we adapt to new things, new people, new situations. It puts us in a place where we have to go out of our comfort zones. Unless we learn to adapt, we will always be uncomfortable with the changes around us.

When things change, the more you resist, the harder it will be for you. It’s because when things around you change; you need to change yourself too in order to adapt. On the other hand, if you want things around you to change; you need to transform yourself first.

There will be times when the wind beneath your wings blows as a hurricane. That is not time for self pity. It is time to be thankful that you learned how to fly.
— Patti Dawn Swanson, Sierra

In order to change, you will need not only your internal motivation but also external resources to help you succeed. You might need to learn a new skill, seek the help of a mentor or coach, read books, take an online course or watch video tutorials to acquire new skills and knowledge. These are important components that will help you soar into your transformation. They are like the wind beneath your wings that will help keep you afloat amidst the storms in your life so you can come out better than you were before.

Imagine change as a wave of ups and downs that you have to go through in life. Most of us will initially change this downward motion. These are the times when we feel down and even directionless. We often feel anxious and full of worries. It’s times like this when we think that our fears are becoming reality. The present seems out of our control and the future looks bleak and even scary.

Change is like a test or a series of tests. Each test you overcome will help you become the person you want to be so you can live the life you want. Instead of resisting change, recognize that it is an opportunity to better yourself and level up your life. When you take the time and effort to allow for your own transformation; you will find that the world is transformed as well.

Feature Image: Original Image by jakov zadro from Pixabay.

May

2020

Life-Changing Books on Wealth and Success

Reading Time: 7 minutes

Your first step towards wealth is not some rocket science. All you need is to develop some good habits. Habits are things that you continually do on a regular basis. Highly successful people have daily success habits. These habits are what made them successful. So, If your goal is to become rich, you must learn to adopt some rich habits. One of these habits is to read life-changing books on wealth and success.

Tom Corley, author of the bestselling book Rich Habits: The Daily Success Habits of Wealthy Individuals stated that out of all the habits of the rich and highly successful people, the most significant difference between the habits of the rich and the poor is their reading habits. According to him, about 88% of the wealthy read at least 30 minutes a day while only 2% of the poor do.

The more you read, the more things you know. The more you learn, the more places you will go.
Dr. Seuss

Highly successful people read a lot. Warren Buffet reads 600-1000 pages a day. Bill Gates reads about 50 books a year. Mark Zuckerberg reads a book once every two weeks. These people do not just read anything. According to Tom Corley, successful people read to learn. They read books on self-improvement, success, business and their industries. They also read biographies and autobiographies of other successful people. The poor on the other hand, read to be entertained.

If you want to become rich and successful; begin by reading. Do not just read anything, read books that will help you grow as a person. Through reading financial books, you will be able to learn so many things about money and how money works. A better understanding of money will give you enough tools that can help you make good financial decisions in your daily lives.

Life Changing Books on Wealth and Success for Beginners

There are millions of success books out there. For beginners, I would like to recommend five life-changing books on financial literacy and success. Read them. Study them and apply them in your life. Hopefully by doing so, these books will serve as catapult and inspiration in your journey towards a wealthier, healthier and happier you.

8 Secrets of the Truly Rich by Bo Sanchez

If reading is not your cup of tea, there is no better better way to start developing your reading habits than through this book. Preacher and best-selling author Bo Sanchez has mastered the art of story telling. No long descriptions. No lengthy paragraphs. It is written humorously so there is never a dull moment. This is the best book to start not only your reading habit but also my journey towards financial freedom.

This book is very inspirational. Bo Sanchez challenged some people’s negative beliefs about money. A lot of Christians grew up with several crazy religious beliefs such as the rich cannot enter the Kingdom of Heaven and the come what may attitude in the sense that some people rely on God too much and they fail to do their part. For the longest time, people were made to believe that wealth and spirituality don’t mix just like oil and water.

Bo Sanchez wants the people to stop blaming others and instead be totally responsible for your own success. He placed the context of money and success as part of God’s plan. God wants you to be wealthy because He wants you to have the ability to help others. It is difficult to help others if you are poor.

Money is not dirty. Instead, money with the right purpose will do wonders for the world. it also put emphasis on the importance of doing your part as opposed to waiting for God’s blessings to come your way. The road to financial freedom needs commitment. It also involves raising your financial IQ.

Think and Grow Rich by Napoleon Hill

First published in 1938 during the Great Depression, this book is considered to be the most influential book of all time. Its author Napoleon Hill is said to have motivated millions of people into success than any other person in history.

As a journalist, Napoleon Hill was given an assignment to interview one of the richest man in history and said to be the most powerful man in the world during that time, industrialist and philanthropist Andrew Carnegie. Andrew Carnegie refused to directly answer Napoleon Hill’s questions. Instead, he commissioned Napoleon Hill to interview over 500 millionaires to find the common success formula that will help the average person overcome the great economic depression of that time. Napoleon Hill spent 20 years researching and interviewing successful people such as Alexander Graham Bell, Thomas Edison, Henry Ford, John Rockefeller and Theodore Roosevelt.

If Bo Sanchez was able to convince you to want to become rich, then Napoleon Hill will guide you and give you the initial steps you need to take on how to become successful. According to Hill, success is a product of your mind.

Whatever the mind can conceive and believe, it can achieve.
Napoleon Hill

You need to know what you want to achieve and be committed in achieving it. Life only gives you what you ask for – whether it be riches, happiness, love and success. The book is basically an account of how to develop the correct mindset to gain success and accumulate riches.

The Secret by Rhonda Byrne

The Secret is basically a reinforcement of Napoleon Hill’s teaching on the power of the mind. Rhonda Byrne elaborates on the power of positive thinking. Thoughts are powerful. Just like The Law of Attraction, we attract things that we focus on.We attract positive things when we focus on the positive and in the same way, we attract more negative things if what we only think about is how miserable our life is.

For example, you are going to take an exam. If you are going to focus on how hard the exam will be, you are not helping yourself a bit. Instead of focusing on how hard the exam will be; think of ways to prepare yourself for the exam. Study well so that when the day of the exam comes, you are prepared. By shifting your focus from the negative to the positive, instead of being helpless, you become in control.

Although bombarded by critics because of its metaphysical claims that anything you think about or focus on will come true; in a way, this book actually gives hope to people in hardships and in pain. Instead of dwelling on your pain, Rhonda Byrne encourages optimism and love. Our life is the product of our thoughts. Change your thoughts and you change your life.

All that we are is a result of what we have thought.
Buddha

If your mind is now filled with positive thoughts and you now have a burning desire to change your life as encouraged by Rhonda Byrne, you are now ready for Robert Kiyosaki’s financial management lessons.

Rich Dad, Poor Dad by Robert Kiyosaki

Rich Dad, Poor Dad has been dubbed numerous times as the number one finance book of all time with millions of copies sold. In the book Robert Kiyosaki talks about his two dads who are both successful in their careers. The main difference between his two fathers is that his real father put importance on academic intelligence while his rich father put importance on financial intelligence.

His biological father has a doctorate degree in two prestigious universities in Hawaii. He earned a considerable amount of income in his lifetime yet he was always struggling financially. He left debts to be paid upon his death.

His second father, the father of his bestfriend, never finished eighth grade. However, he was one of the richest man in Hawaii leaving millions of dollars to his family and to several charities upon his death.

The book attracted a lot of controversies because it critiques and enumerates the flaws of the current educational system. Robert Kiyosaki challenges the conventional teachings of middle class family of studying hard to get grades so that you can have a good job, climb your way up to the corporate ladder and save along the way.

Kiyosaki will open your eyes to a world from a different perspective. He stressed the importance of financial literacy by explaining key concepts in finance such as assets and liabilities and passive income versus earned income. For him, it is important that you do not become a slave of money but instead learn how to make money work for you.

The Secrets of a Millionaire Mind by T. Harv Eker

If your are ready for the next level which is to take action, then the Secrets of the Millionaire Mind by T. Harv Eker is the book for you. This book is meant to be applied in your life. T. Harv Eker provides a step-by-step guide in identifying your old thinking and changing it into a millionaire’s mind.

To master the inner game of wealth, T. Harv Eker, suggested several exercises or challenges for you to do in the wealth files. He also emphasized the importance of declarations in changing your mindset. One particular challenge is if you are a complainer, you are not supposed to utter a word of complaint in 7 days. By following the activities, you will slowly adopt the millionaire mind.

One of the most effective ways to change your financial life that the author recommends that you apply in your life is under the wealth file on how the rich handles their money. According to the author, poor people have a tendency to mismanage their money. He recommends using the money jar budgeting system as a a budgeting technique. A lot of testimonies were written on how their net worth improved drastically by simply following T. Harv Eker’s advices.

Other Books on Wealth and Success

Other titles that are worth reading include:

Awaken the Giant Within by Tony Robbins
Chicken Soup for the Soul Series by Jack Canfield and Mark Victor Hansen
How to Win Friends and Influence People by Dale Carnegie
My Maid Invests in the Stock Market … and Why You Should, Too! by Bo Sanchez
Rich Habits: The Daily Success Habits of Wealthy Individuals by Thomas Corley
The 7 Habits of Highly Effective People by Stephen Covey
The 48 Laws of Power by Robert Greene
The Alchemist by Paulo Coelho
The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich by David Bach
The Greatest Salesman in the World by Og Mandino
The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham, Jayson Zweig and Warren Buffet
The Millionaire Next Door by Thomas J. Stanley and William D. Danko
The Richest Man in Babylon by George S. Clason
The Slight Edge: Turning Simple Disciplines into Massive Success and Happiness by Jeff Olson

Your learning journey will open up a whole new world of ideas for you. However, reading is not enough. Remember that you also need to be able to apply these new insights in your life.

Happy reading!

Updated version. First published in Pinoy Smart Living 08.15.2016

Feature Image: Free-Photos from Pixabay

May

2020

How Financial Literacy Can Change Your Life

Reading Time: 3 minutes

Are you constantly worried about money? How is your financial situation during the lockdown? Are you struggling to make ends meet? Do you have enough savings to go through this pandemic? Are you struggling to meet debt obligations? Are you living from paycheck to paycheck? Do you feel that your salary is not enough to cover your monthly expenses? Are your financial worries so stressful that they are already gravely affecting all aspects of your life including your health and personal relationships? Well, there is a solution to your problem. That is, a basic understanding of finance. Financial literacy can change your life for the better.

What will you do when you have money problems? Most people will look for ways to earn more money by sacrificing their time and health. They will either get a second job or work overtime just to raise the needed money. Other people will resort to borrowing money. However, not all loans are created equal. There are good loans and bad loans. Some loans like credit cards charge high interests and can easily spiral out of control especially if you don’t know how to use them. There are some who will simply rely on government support. While these strategies may help ease your financial burdens in the short term, it is not going to permanently solve your money issues in the long run.

There is only one solution to money problems and that is financial literacy.

The single biggest difference between financial success and financial failure is how well you manage your money. It’s simple: to master money, you must manage money. –
T. Harv Eker

Financial literacy is essential in having a secure financial future. Unfortunately, financial literacy was never thought in school. For most people, the yearning to learn financial literacy only comes when they are already faced with financial crisis.

Academic qualifications are important and so is financial education. They’re both important and schools are forgetting one of them.
Robert Kiyosaki

So, what exactly is financial literacy? Wikipedia defines financial literacy as ” the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources”.

In short, financial literacyis simply understanding money and how it works. It is knowing how to budget, how to pay your bills, how to borrow money responsibly, how to save, invest and prepare for retirement. Financial literacy will help you make good financial decisions in your everyday life that will ultimately affect your overall financial situation and change your life for the better.

Working hard is simply not enough. You can be a graduate of a four-year course, have a master’s degree or even a doctorate degree but know nothing about personal finance. Even if you are earning millions, you can still end up poor if you know nothing about how money works. It is not about how much money you make but it is all about what you do with the money that you earn that matters.

It is not about how much money you make. The question is are you educated enough to keep it.
Shaquille O’Neal

More so, have you ever wondered why the rich is becoming richer and the poor becoming poorer? Contrary to popular belief, it is not because the rich are all crooks. Neither it is the government’s fault. If you want to know the answer to this question, invest your time in financial education and soon you will find out that the only thing that is stopping you from being wealthy is you.

Make your first step and start your journey towards financial literacy now.

And remember, financial literacy is a lifelong journey. It will not end by simply reading just one book. It is something that you need to learn throughout your life if you want to achieve complete financial freedom.

Edited version. First published in Pinoy Smart Living 10.19.2018Feature Image by mohamed Hassan from Pixabay Images

Mar

2020

How To Improve your Finances During a Crisis

Reading Time: 2 minutes

The current crisis has not only negatively affected the people’s health and wellbeing, it has also affected the world economy. Many industries are now falling. Companies, factories and stores are closing. People are losing their job. Unless this crisis will end soon, many people might find themselves with money worries in the near future. Although income might stop coming, household expenses will not. Debt and mortgages are piling up. Thus, it is important for everyone to how how to improve your finances especially during a crisis.

Here are some things that you can do right now on how to improve your finances during a crisis:

1.Review your budget

Take a good look at your monthly budget. If you don’t have any budgeting plan, now is the perfect time to start having one. The money jar budgeting system is a good way to start creating your survival budget in this tough time. If you are already having a rough time, then you need a budget more than ever. A budget will help you track down where your money is going. It will also help you plan on your future spending.

2.Cut Expenses Immediately

Take advantage of the times. Refrain from going out unless necessary. Focus on the basics. Nutrition and health should be the main concern of everyone. Do not buy non-essential items. Stop eating out. Your main goal right now is to cut down on expenses. You don’t know how long this crisis will last so it is important to have as much emergency money as possible.

3.Talk to Creditors

It is almost impossible to keep up with bills if you are being quarantined especially if you have no savings. The best approach is to talk to your creditors and explain your situation. Ask about your options. The good news is that since you are not alone in this crisis, many governments already issued indefinite moratorium for those affected. Banks and insurance companies have started implementing assistance programs. Utility companies are following suit by waiving fees and postponing disconnections.

4.Look for Other Sources of Income

If your income has already been affected, now is the time to look for other sources of income to boost your cash flows. There are many ways to earn even from the comfort of your home. Search online. Look for something that you are good at.You can be someone’s virtual assistant. You can do online tutoring.You can start creating your own blog or vlog. You can create webinars. The possibilities are endless.

5.Improve your Financial IQ

If you are worried about your finances during this pandemic, that is an indicator that there is a need for you to improve your financial IQ. To be financially literate means having the ability to manage personal finance matters. That includes having an emergency survival fund in times of crisis.
It is not yet too late to start now. Take advantage of your time at home. Read about personal finance on books, magazine and the internet. Listen to podcast. Study the lives of millionaires and other highly successful people. Educate yourself and apply it in your life. Start by setting financial goals.

6.Don’t Panic

If you are already an investor; Warren Buffet, the most successful investor in the world, advised investors not to panic. It is best to stay invested and look at the long-term outlook of the stock market. Although it is only natural for investors to be fearful, it is never a good idea to buy stocks based on headlines.

Be fearful when others are greedy. Be greedy when others are fearful. – Warren Buffet

Feature Image by Posted by A.L. Jonas in Financial, 0 comments