Handling money the right way is not any piece of cake. Money does not come by all that easily, at least not if you inherited it, and to ensure that one spends it wisely while also making smart decisions to achieve all the goals, one must be extremely prudent. If your goal may be a prosperous year, there is quite a method to urge there. You will boost your money or invest in an individual retirement account. You will pay off high-interest debt, build your emergency fund, and save for a specific goal. There are even a couple of belongings you can check your financial checklist in five minutes or less. So, without wasting so much time, let us try to understand Financial IQ.
Still, changing your mindset is additionally prominent if you would like to create wealth. If you never learn more about money, how can you make long-lasting changes or avoid past mistakes? The active management of hard-earned money contributes to your financial IQ, more commonly spoken of because of financial intelligence. If you are looking to raise your financial intelligence, here are several habits to pick up in the year. But first, allow us to understand what the concept means.
UNDERSTANDING FINANCIAL IQ
Very simply, financial IQ refers to the power to make your money grow by spending wisely, saving, and investing right. The bestselling author “Robert Kiyosaki” in his finance book Rich Dad, Poor Dad, made the idea so popular. Financial Intelligence is all about using information and your wisdom to set the right choices in managing money.
At the core of the concept of financial IQ lies the understanding that one should make constant changes to your intelligence. How does money work? We want to tell you that money will not multiply by itself. So, we are the ones who will make the choices that will determine what happens to our money. Right decisions about money management are what financial IQ is all about. Decision-making will only use as we empower ourselves with enough knowledge about making money and budgeting.
WHY IS FINANCIAL IQ IMPORTANT?
It might not appear so at the outset, but a high financial IQ can bring more benefits to an individual. However, everyone has some basic idea about their finances and the way to manage them. Nevertheless, most people are not so successful. They are great at not just making capital but also saving and compounding it. It is often where financial IQ becomes significant.
The financial situation of everyone is different and there is no one-size-fits-all when it involves managing money the right way. Sure, you will have learned something from your family, friends, and peers. Although, your particular financial situation might not work with the model you know about it. That is why it is prominent to possess a high financial IQ so that you will spend your money wisely, save enough, and plan for your retirement, all with the prevailing corpus you have got to start with it.
HOW TO IMPROVE FINANCIAL IQ?
When it involves nurturing prudent habits for a high financial IQ; Nothing will work better than taking an outing to seek out more about personal finance. Although, there is a requirement for each individual, no matter how young or old they are, to remain in the loop about the latest in the world of finance to make their money grow. You need not be a finance genius, but educating yourself regarding personal finance through different verified sources and learning new skills to budget better can go a long way towards boosting your financial IQ. Good financial IQ comes from managing your money in a good way. Here are a couple of habits you can nurture to boost your financial IQ and work your way towards financial success.
CONCENTRATE ON SAVINGS
There is no need to tell that an excellent habit of people with high financial IQ is saving money. No matter how much your income is, make it a habit to put aside part of your income every month in the form of savings. Savings is vital at every stage of your life as not only does this encourage prudent spending. However, it also helps you create a fund for emergencies. With your savings, you can fund your goals either in the short term or even the long span without burdening yourself with a loan or skewing your regular expenses.
READ ABOUT PERSONAL FINANCE IQ
Many people are looking to learn personal finance and start their journey with a tried and true money book. These books can teach you much more than personal experience after you have made mistakes. A few popular books from great authors such as Rich Dad, Poor Dad of Robert Kiyosaki, The Automatic Millionaire of David Bach, Get a Financial Life of Beth Kobliner and The Total Money Makeover of Dave Ramsey.
These books will not just improve your financial IQ. However, they also clarify many commonly faced doubts of people concerning personal finance. However, there are plenty of books that can help you think about money in a new way. You can pick up one (or two) in financial subjects that align with your goals, whether it is budgeting, debt repayment or investing. It will provide you with the right tips and tricks for managing your finances the right way regularly.
TRACK YOUR NET WORTH
If you focus only on how much you earn, it is easy to think you are getting wealthier when you are not. Bringing in more money than you did the last year even at six figures. It will not help you grow wealth if you spend it all. But tracking your net worth; a term used to describe your assets minus your liabilities and puts your income in perspective. Arrearages will include all your debts, including credit card bills, loan instalments, and your expenses. It helps you see how your arrearages change over time and how much money you are banking. Keeping a regular check on your net worth will let you know if your liabilities change over time and how much you manage to keep in the bank or assets.
EVALUATE YOUR EXPENSES
Are you ready to have a real financial awakening? If you are feeling your money is slipping through your hands like grains of sand. It is time to take a look at where all the funds are going. This habit takes a little leg work, but it shows you where your money is going. The first step towards one of the good habits is making a list of all your expenses. Whether you decide to write down your purchases, manage bank and credit card statements or special software. You will have nowhere to cover once you see what proportion you spend on food, entertainment, and extras monthly which will hamper. You can also maintain a personal diary or journal to keep track of your daily expenses if you have a problem remembering where you spent money.
MEET WITH A FINANCIAL ADVISER OR TAX PLANNER
Are you still unsure about how to get your finances in order? As your financial situation gets more complex, meeting with a fee-only financial advisor or a tax planner who concentrates on investments may make you privy to some tip or strategy you are unfamiliar with. They will be capable of help you with how to manage your finances better. Additionally, seeking the services of a tax planner will also assist you in understanding the right amount you need to pay, calculate where you can claim rebates and save on taxes without breaking the law. A tax planner can help you do just that while also helping you reduce taxes in the future.
FOCUS ON WHAT YOU CAN CONTROL
Sometimes, life appears unmanageable and unpredictable. Moreover, if you learn all that you can about money. You can not control what happens in the stock market or if the value of your worth goes down. When the situation goes totally out of our hands, many people wonder if there is a point at which they can try to achieve financial health. But do not despair about it, and focusing on what you can control leaves you better off. For example, while you cannot change the decline and flow of the stock market. Although, you can control how much you invest. And, if you can not control whether you get a promotion at work, you can control how you spend your paycheck.
PLAN YOUR PURCHASES
Everyone has something or the other on our Wishlist, and some of these purchases are more expensive than we can afford. A new car, jewellery, electronics or even that costlier perfume as there is no end to the luxuries you can want. While you might want to make the purchase immediately and a great sign of high financial IQ is planning your procurements and making them after saving up enough money. Kindly make it a habit to keep from impulse buying and if you like something that falls outside your budget, save up and then buy it without affecting your financial health.
CONSIDER LOAN AS THE LAST OPTION
Today, purchasing even luxury and high-end goods has been made much easier thanks to the easy availability of loans. Instant purchase on EMIs might seem like a dream come true when it comes to financing your dream goods or services. Although, in the long term, it severely affects your financial health. Kindly consider a loan as the last option and when you think that your income can sufficiently handle the burden of monthly instalments. It is one of the great habits which can improve your Financial IQ.
LIMIT YOUR CREDIT CARD EXPENSES
Holding a credit card is a great habit if you wish to build and improve your credit score. However, when it involves improving your financial IQ. You ought to limit the number of credit cards you own and use. Usually, when one has too many credit cards, one tends to lose track of all the purchases made. When the bill is presented at the end of the cycle, the figure might disturb your entire budget. If you retain this habit, it will also affect your financial stability in the long run.
INVESTMENT TO IMPROVE FINANCIAL IQ
Maybe you want to invest in a new course to learn new enhancement skills. Perhaps you would like a certification that could lead to higher pay and better job prospects. Sometimes, the simplest money investment anyone can make is not bonds or stocks but personal development. After all, what better tool does one need to grow wealth than you?
Saving money is a great habit, but if you wish to multiply it, whether it is for the fulfilment of short-term goals or retirement planning, investing money is a good habit for your wealth. There are numerous options to invest money like the share market, real estate, fixed deposits, currency, gold and many more. However, when you invest your money, make sure you research adequately all the pros and cons of the market you intend to dive into. So, you can have more and steady returns.
By reaching out and connecting with new people in your niche, you always have your finger on the pulse of your industry and make new valuable contacts. You never know when a new relationship can turn into an exciting new job prospect, business or career opportunity.
WHY SHOULD WE BOTHER ABOUT DEVELOPING OUR FINANCIAL IQ?
Even after being educated, 90% of the people do not know the basic financial concepts of Savings and Investments. People still believe Cash in bank, Fixed Deposits, National Savings Certificate is the best investment option. They are wary of investing in Mutual Funds because of the risks involved. Let me demonstrate how an individual who doesn’t have a Financial IQ may suffer the following problems:
- One who has no investments, and the money saved depreciates over time due to inflation.
- Since all the money is in his bank account, he has an urge to spend it on useless items.
- He has to pay more taxes rather than usual.
- He dies and does not have any Term Life Insurance to take care of his family. His family will suffer as he was the sole bread earner.
- One gets in an accident, and the hospital charges a bomb in which he loses his lifelong savings as he does not have a Medical claim policy.
- He does not time his cash flows (through credit cards) and is always short on cash.
I apologise for the harsh situations above mentioned. Although, one needs to realize the importance of Financial IQ and the problems that may fall if we do not follow the good habits for improving Financial IQ. Believe it or Not! It is not rocket science, but it is a simple application of the mind.
Thanks for Reading!!!
Composed By: Abhay Ghanghas