If you’ve been waiting for a sign telling you it’s time to smarten up your financial literacy knowledge, this is it. Financial literacy, or the skills and knowledge to make informed decisions about money.
What is Financial Literacy?
- Being able to set and keep to a budget
- Understanding how different taxes work
- Filing a tax return
- Reading financial statements
- Creating financial reports to make decisions from
- Being able to pay all your bills when they are due
- Protect your personal information from identity theft
- Knowing how loans work and which types suit your needs best
- Understanding how compound interest and interest rates work
- Being able to work on reducing debt
- Having a fully-funded emergency fund
- How life and other insurance policy types work and benefit holders
- Making regular contributions to a retirement fund
- Paying cash rather than with credit
- Identifying if something is a need or a want
- Being able to comparison shop for a major purchase
- Understanding the pros and cons of debit and credit cards
It would be fair to say that financial literacy means different things to different people. We can also say that a person can be financially literate in both their personal and business lives too. All too often though, neither occurs and what results is life harder than it needs to be.
Being accountants, bookkeepers, business advisors and most of all, real people with a genuine desire to help, we’ve put together some simple ways you can improve your personal and business financial literacy.
Easy Ways to Improve Your Personal & Business Financial Literacy
The truth is, matters and it affects every part of our daily lives. From where we live, what car we drive and how much we spend at the supermarket, we’re seemingly ruled by how much money we have and what we choose to do with it. By raising our level of financial literacy, we are better placed to make informed decisions which will benefit rather than hinder our lives.
How to Build Your Financial Literacy
- Taking a workshop or course – both Westpac and ANZ offer free training, be it a webinar, a course or a one to one meeting.
- Using free financial tools – ASB and Kiwibank both have free software available on their websites which will help you track your spending and help you understand what to do regarding budgeting, dealing with debt and saving.
- Reading up – there are many great resources available online which contain information on all sorts of financial matters. For starters, the information available right here on our website is something you must check out. Sorted is also a good one which springs to mind, and they offer a large range of free tools and guides on everything from retirement planning to getting out of debt.
- Ask for expert help – if there is a specific area you need help with or even a general introduction towards understanding finances in general, see us first. We look beyond the numbers to identify the gaps you need help with filling and create a plan to help you achieve your financial goals.
- Get a handle on your budget – a budget lays out how much money you have coming in and what is going out. By writing down what money you have coming in, and allocating each dollar to a specific thing (food, petrol, housing, debt repayment, savings etc), you are taking control of your money and making it work for you.
- Set SMART financial goals – a goal that is specific, measurable, achievable, relevant and time-limited increases the likelihood that you will reach it.
- Listen to financial podcasts – Dave Ramsey is an American guy who is 100% committed to teaching financial literacy, so is worth listening to. A quick search on iHeart or Spotify will bring up others too.
If you’re sitting on the fence as to whether it is worth the effort to grow your financial skills and knowledge, keep reading. We’re moving on to explaining the reasons why you should boost your financial literacy next.
Why Financial Literacy Is A Must Have Skill
The benefits of building up your financial skills and know-how include:
- Being able to repay and avoid debt
- Gaining control over your money
- Being able to live the life you want to lead
- Understanding the importance of saving as soon as possible
- Setting and working towards achieving financial goals
- Having no worries about where the money is coming from to pay bills
- Being able to retire without relying upon the government for a pension
- Knowing how to cope when life throws you expensive challenges
- Ability to be able to save for major purchases without needing a loan
- Knowledge to make investments which give you a good return
No matter what state your finances are in, it is never too late to start improving them. It is also a great time to start teaching your children about making smart money choices, helping them avoid costly mistakes and decisions in the future.
Specifically Looking at Financial Literacy Requirements for Business Owners
As a business owner, a different or wider set of skills and knowledge is required to be financially literate. A 2014 NZ study asked small business owners what financial literacy skills were necessary to run a business successfully. They said:
- Understanding how to price products accurately – having a price which customers were happy with, plus which covered costs and provided a profit
- Keeping accurate records of income – this could be from a cash register or internet banking or using software such as MYOB or Xero.
- Managing debtors – knowing what to do to get paid by debtors or creditors.
- Manage expenses and control outgoings – paying rent and taxes, machinery upgrades and power bills, having enough money to pay for expenses is essential.
- Maintaining accurate accounting records – choosing to use the services of a professional bookkeeper or accountant made running a business far easier.
- Understanding the requirements around having staff – sick and holiday pay, KiwiSaver and overtime.
The good thing about being a business owner is that you can always outsource the management of your accounts and paperwork. What you can’t outsource though, is the need to understand (at least in general terms) your business’ financial state. Rather than struggle alone trying to understand all the terms and numbers, come and have a chat with us at our Taupo office, via phone, email or web-based. We would love the opportunity to make managing your personal and business finances as pain free as possible.