What does it mean to be financially literate? For many new Canadians who may be in survival jobs, possessing financial literacy knowledge can be the difference between economic freedom and living paycheck-to-paycheck. Individuals with an understanding of this concept can set goals and make sound financial decisions. In other words, financial literacy means you are being smart about your money.
Keep on reading to learn more about how you can gain financial literacy.
Creating a financial plan
Do you find yourself short on cash at the end of the month? Or maybe you are unable to save for the things that you want. Creating a financial plan will help you get your finances organized to achieve your personal finance goals.
Creating your financial plan requires some self-reflection. Think about where you are today and where you want to be in the future. Set various short and long-term goals that will help you achieve your goals. Consider making a budget so that you stay on track and don’t overspend.
Set up a SMART Goal
There’s a difference between a wish and a goal. The difference is that a wish is not SMART. When thinking about your financial goals, consider a SMART goal that is Specific, Measurable, Achievable, Realistic, and Time-framed.
For example, consider the following difference between a wish and a SMART goal.
- Wish: I want to buy a car.
- SMART Goal: I want to save $5,000 for a car within the next two years.
As you can see, the SMART goal gives specific and measurable targets that are realistic and achievable. There is also a given timeline to help the individual keep focused. On the other hand, the wish does not provide clear instructions. An individual who follows a SMART goal is less likely to fail than someone with a wish.
Make a budget
Making a budget will help you keep track of your spending and plan for your financial goals. A budget is an estimate of how much money you will spend for a set period. For example, you can have a yearly budget, monthly budget, or even a daily budget.
To create your budget, you will need to compare all your income against all your expenses. First, you want to calculate your total net income – this is the amount of money you take home after deductions from your pay. Compare your net income with all your expenses. Examples of common monthly expenses may include:
- Utilities and bills
Balance your net income with your overall expenses. If your costs outweigh your net income, you may need to consider controlling your spending and making sacrifices on unnecessary purchases. Having this understanding will allow you to prepare a realistic and achievable budget for your family.
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