There is a filter on Snapchat that says “Too broke to go out” and it has been used more times than it should have been. We do not realize that ‘being broke’ sounds relocatable right now, for sure, but it is not healthy to be a sinking ship, being unable to manage our finances.

What is Financial Literacy?

Financial Literacy is when people get to educate themselves about spending their money in a certain way and earning it in a certain way. This also includes knowing how investing works, to grow the money you already have.

According to Stratton Finance,
”Financial Literacy is our ability to understand how money works in the world, as well as how we earn it, manage it and spend it sustainable in our lives.”

This is a simple definition of Financial Literacy that has explained most of its aspects. But the real question here is,

Why do We Need to Study About Money?

Financial Literacy is just as important as earning money. Do we want to live paycheck-by-paycheck? Not really.
Do we want to keep asking our parents to get us the stuff we want every time it goes out of our budget? Not the ideal situation if it happens with every big investment.

It is important for everyone to be financially independent, and being employed is not enough. We need to know how to use the money we earn, or we will all be in debt once we have a family of our own. You can only call yourself truly financially stable right now, if you, casually lying in your account at least 6 months worth of your expenditure in cash.

So let’s assume you have $7000 in your account right now, and you spend about $1500 every month, then you approximately need
($1500 x 6Months) - $7000 = $9000 - $7000 = $2000 more.

Once you have reached the $9000 mark, you can safely get fired without having to immediately worry about getting another job.

How do We Become Financially Literate?

It's not just about getting to know economics, or about studying a few accounts books (even though that would be of some help). Financial literacy is all about knowing how to apply the concepts that we have all been taught at school, but never really thought of applying.

Here is one of the most important lessons that we have learnt from looking into the big, wide world of finance for dummies:

Think about ROI

Let’s use a car as an example.
Return of Investment is the amount you will get later when you sell your old car that you bought earlier. Let’s say you buy a second-hand car for $10000. With an additional expenditure of $1000 you secure its registration and insurance, too. Your fuel, maintenance etc. will cost you about $4k-$5k a year.

Spends: $15k approx.

You drive this car regularly and the amount of time you save is 8 hours every week minimum,
which is 8*52 hours = 416 hours a year.
Let’s say you get paid $30 per hour for your work, your time is now valued at $30/hour.
Now,
416 hours x $30 = $12480 approximately

When you sell your car to a car buyer in Christchurch, you could get up to $8000 (approx.) cash in hand from car removals companies like Kiwi Cash for Cars. The price has decreased because of depreciation at 8% p.a.)

Now, to calculate your return on investment,

Revenue = (Sale Price + Benefits from asset) - Costs

($12k + $8k) - $15k = $5k

So you still have $5000 for yourself to invest in a whatever you want.
This is why it is important for you to buy a car that you can sell for a good cash offer. If the reputation of the vehicle manufacturer is not good, you would get much lesser than $8k.

Bonus: Think about Saving, Mobilisation and Investing

You should be looking at saving about 30% of your salary, where the recommended minimum is 20%. If you save 30% you can travel, or do that course you wanted to do, but couldn’t pay for earlier. It makes you stress less about a buffer amount, and focus on better things in life!
There are multiple benefits that you get when you put your money into a bank. Most banks offer good interest rates depending on which kind of account you have.

Let us know how much you saved this month, and where you invested in the comments below!

Author's Bio: 

Kiwi cash for cars is a car buyer based in Christchurch that purchases all type of vehicles any make or model.