The Sunday Mail
FINANCIAL literacy will not happen by accident but by design.
Money, for most of us, can be a double-edged sword.
On some days, we are in love with making it, and on other days, we dread having to work to get it.
But a high level of financial literacy is key to one’s success.
To have a great relationship with money, we must understand what it is, how to use it and how to manage our risks when we use it.
So, here is what you need to know.
Understanding money
Money is a tool. It helps us accomplish what we want in life and business.
We all have a relationship with money, and how it manifests itself through our spending is based upon our financial literacy — or lack thereof.
The first step for increased financial literacy is to understand that money is a tool created out of an idea and need for us to exchange things of value, be it goods, services, et cetera.
You don’t want more money — you want more of what it does for you.
So, how do you understand money?
Understand how you spend it by mastering your cash flow.
Show me how and where you spend your money and I can tell you if you understand it or not and what is important to you. Knowing your cash flow helps you understand what you actually do with your money, which can be very insightful and helpful on how best to use your cash.
I did not understand money or my cash flow at all after graduating from college, but I eventually mastered it by creating and using a simple yet robust cash flow worksheet.
This will help you learn how to properly use money.
Using money
Money should be thought of as a tool of precision that can help us accomplish whatever it is we want. We earn money by doing or creating something of value. But what are you using your earned money for? Once you understand your current cash flow situation, you can assess some simple yet important things. Are you cash flow-positive every month? If not, why?
Are you spending (using) money on mainly assets or expenses?
Assets, ultimately, put money in your pocket, while liabilities (expenses) take money out.
Once you understand your money and where it is currently going, you can leverage this information into how best to use your money.
Instead of spending X dollars a month on coffee every morning, which can easily add up over time, what if you took that money and used it on something that made you money?
You could spend it on marketing your business, investing in a savings plan, paying down debt and so on.
Taking it a step further, you can now determine the return on investment on where you are using your money.
If you are paying down debt faster with your excess cash flow, you are saving interest — and that is real money.
A best practice is to balance how you use your money.
There is nothing wrong with spending some of your money on things that you want, but it also makes sense to deploy your money into things that can work for you.
Where will your money work hardest and best for you?
Managing risk with money
Virtually everything in life has some level of risk.
Risk is basically uncertainty about the future. When it comes to our finances, whether it is personal or business, we have an opportunity to protect ourselves against uncertainty and manage risk.
As an entrepreneur, we are prone to and arguably seek out risk since we know it can lead to a lot of rewards, but that does not mean that we should blindly take on risks and just hope for the best.
Planning for the worst and hoping for the best is a sound practice to help manage your risk.
If we know what money is, how to use it and how to manage risk with it, we end up empowering ourselves to be the master of not only our money but — to an extent — our future.
Life happens and curveballs will fly, but controlling these variables to the extent we can gives us a much better chance of being successful with our money. — entreprenuer.com
