The importance of financial education cannot be overstated. With an economy driven by finance, it is crucial to learn how to manage one’s finances intentionally.
TABLE OF CONTENT:
Importance of financial Education.
WHAT IS FINANCIAL EDUCATION?
Financial education refers to having the right understanding of how to manage your money and the basic skills needed to do so correctly.
IMPORTANCE OF FINANCIAL EDUCATION
Here are some reasons why financial education is important:
1. Grow your money:
With the right knowledge of finance, you can increase your wealth and grow your money. For example, two individuals, Mr. A and Mr. B, can receive the same amount of money, but at the end of 30 days, they may have different amounts. This difference can be attributed to their level of financial education.
2. Avoidance of debt:
Financial debt is the money you owe. Some debts result from financial illiteracy. By having the right knowledge of finance, you can avoid debt and manage your money properly.
3. Savings :
Saving involves setting aside money for future use. It is not wise to spend all the money you earn in one go. Every financially literate person understands the importance of saving. Regardless of how much you earn, there should always be a percentage that you save. Saving can be divided into long-term goals (for investments in the future, typically five years or more) and short-term goals (for use within a short period).
4. Readiness for Emergency :
Emergencies are unexpected situations that require immediate attention. It is important to have an emergency fund dedicated to such situations. An emergency fund is cash set aside for unplanned expenses that need immediate attention, such as car breakdowns, medical bills, job loss, etc. Having an emergency fund helps alleviate financial stress and prevents falling into debt. While certain things cannot be predicted, you can always prepare for uncertain times. It is very important to distinguish between true emergencies and discretionary spending, such as:
● Vacation: A vacation cannot be classified as emergency. Vacations should be planned for. If you want to go on vacation, you can create a budget for that and save towards the trip.
● Gifting: The gifts you buy for others cannot be an emergency. For instance, if you want to buy a birthday gift for a friend, you should consider getting the money from your personal saving account or create a budget for that.
● Life Style upgrade: Upgrading your lifestyle such as buying the latest phones or changing your wardrobe is not an emergency. If you want to upgrade your lifestyle, you can simply create a budget for that. These are things that can be planned for.
5. Budgeting :
Budgeting involves calculating income and expenses over a period of time. Financial education teaches you how to budget and prevents overspending habit. Many individuals face financial problems not because of low earnings but due to overspending. Budgeting helps you spend your money in a moderate and appropriate manner.
FINAL NOTES
While increasing your earning power is important, it is equally essential to learn how to manage your money effectively. Financial education equips you with the necessary knowledge to navigate economic challenges and avoid falling into bad debt.
Stay tuned for more information on managing your
finances!