In this article, I write about things that might bother you. This is a topic that people don’t want to discuss, personal finances, and what keeps people poor or bankrupt. “Wait, what?” you might be thinking. How can one thing be responsible for all your financial troubles?” Buckle up your seatbelts because we’ll dive right in.
Financial Literacy: An Invisible Barrier
You may have never heard of this term, or you may have heard it but not paid much attention to it. Either way, it’s time to bring it to the forefront of your mind. It’s the reason why I’m leaving. Now, this applies not only at the individual level, but also to the corporations, governments and political groups that create poverty through their actions. I would argue that most of the world’s poverty is caused by poor national economic policies and poor economic leadership. Financial literacy causes poverty because the correct economic principles are not used to create wealth.
Assuming you live in a place with financial markets, independent businesses, and a stable economy, let’s take a look at your personal financial level.
Why Lack of Financial Literacy Leaves You Poor
You’re probably wondering, “What does poor financial literacy have to do with it?” Let’s break it down in a way that makes your head spin:
- Lack of Knowledge: If you don’t know how to manage your money, you probably aren’t doing a good job. It’s like making a gourmet meal without knowing how to boil water. You must be confused, and that’s exactly what happens with your finances.
- Bad Habits: Without proper financial savvy, you can develop bad habits like living on paycheck after paycheck, racking up debt, and not saving for emergencies.
- Fear and Avoidance: Lack of financial literacy can lead to fear and avoidance of dealing with money issues. This means you may miss opportunities to grow your wealth, such as investing in stocks or starting a side business.
- Limited Opportunities: Poor financial decisions, such as not having a good enough credit score to qualify for a mortgage or not having enough savings to start a business, limit opportunities. may occur.
- Lack of skills to increase profitability: Understand that you need marketable and profitable skills that are scarce and valuable enough to create demand from employers willing to pay you as an employee is important.
- No access to capital: Understanding the power of capital in leveraged business ideas and investments is critical. Not understanding how capital works can make you poor. Even if you know what to do, not having access to capital also keeps you trapped.
These factors combine to create a vicious cycle that pushes people into poverty. But don’t worry! I am here to help you break out of this vicious cycle by teaching you important financial literacy lessons.
Financial Literacy Lessons to Get Out of Poverty
It’s time to acquire the knowledge you need to take control of your financial future. Here are some important financial literacy lessons that can help you break the cycle of poverty and achieve financial success.
make a budget and stick to it
A budget is the foundation of sound financial management. Understand your income and expenses so you can live within your means. To create a budget, follow these simple steps.
- List all sources of income.
- List all fixed and variable costs.
- Set financial goals, such as saving for an emergency fund or paying off debt.
- Allocate income to different expense categories.
- Monitor spending and adjust budgets as needed.
The point of a budget is to quantify your spending so you can understand the urgency to increase your income. The fastest way out of poverty is to increase your income and stop spending more than you earn. The driver of earning power is work ethic, and the driver of spending cuts is self-discipline. These two factors will save you money. Savings can be converted into investment capital. This is the core of financial literacy at the individual level.
build an emergency fund
An emergency fund is a financial safety net that helps cover unexpected expenses like medical bills or car repairs. Save at least 3-6 months of living expenses in a separate account. This can provide a buffer between you and extreme poverty. This is more important than any other spending behavior. Failure to understand the importance of this safety net demonstrates a lack of financial literacy.
Understand different ways to make money
Robert Kiyosaki, author of the best-selling book Rich Dad Poor Dad, introduced the concept of four cash flow quadrants to explain how people make money and achieve financial independence. The four quadrants represent different ways of generating income and are divided into his two main categories: active income (E and S quadrants) and passive income (B and I quadrants).
A brief description of each quadrant follows.
- E (employee) quadrant: People in this quadrant work for someone else and earn a salary or hourly wage. Their income depends on the hours they work and generally on a steady salary. Most people fall into this category, but achieving financial freedom as an employee is not easy.
- S (self-employed) quadrant: Individuals in this quadrant are self-employed, including freelancers, consultants, and small business owners. They have more control over their time and income than employees, but still trade time for money. Freedom can be difficult.
- B (Employer) Quadrant: People in this quadrant own and operate large businesses or systems that generate income, whether or not they are directly involved. These individuals are building teams and infrastructure to run their businesses efficiently, allowing them to make money even when they are not actively working. It’s a more scalable and sustainable way to achieve financial freedom.
- I (Investor) Quadrant: Investors make money work for them by investing in assets such as stocks, bonds, real estate, or businesses. They earn passive income from their investments through interest, dividends, capital gains, or rental income. This quadrant has the highest potential for financial freedom, as your income stream is not tied to your personal time or effort.
Kiyosaki emphasizes that the key to financial independence lies in moving from the E and S quadrants to the B and I quadrants. By focusing on building passive income streams, you can achieve financial freedom and gain more control over your time and resources. Understanding this is the first step in acquiring financial literacy.
Summary: The Power of Financial Awareness
In conclusion, financial literacy is a major obstacle preventing many individuals from escaping poverty. Investing time and effort in understanding the world of personal finance, business and investing is essential to overcoming this invisible barrier. By doing so, you will be freed from financial hardships and better prepared to achieve prosperity.
In summary, some of the basic principles and lessons learned so far are:
- Increase your earning potential through your education, skills and experience.
- Creating and sticking to a budget will help you live within your means.
- Establishment of an emergency fund to protect against unforeseen financial difficulties.
- Eliminate bad financial habits such as overspending and accumulating unnecessary debt.
- Actively involved in financial affairs to seize opportunities for wealth growth.
- Build capital to invest in stocks and your own business.
- Understand all the different cash flow quadrants where you can make money.
Remember, knowledge is power. Financial literacy empowers you to improve your financial situation and create a brighter future for future generations. So wait no more. Start your journey to financial literacy education today.