Seven steps to financial literacy

It is not surprising to discover that more than half of Americans are not as financially aware as they should be. Here are seven steps to achieving financial literacy.

Without financial literacy, you may not be able to control what you earn, and could spend your whole life under pressure to pay debts and relax afterwards, which may lead to accumulating more debt.

It doesn’t matter what stage you are at in life, you can make a decision to live a life that is free from debt by taking the simple steps to learn how to become financially literate.

What is financial literacy?

In simple terms, financial literacy refers to the ability to effectively apply knowledge and various concepts in managing your finances and reducing debt. Without this skill, it is very easy to go from six figures straight into debt without any possibility for recovering. Having knowledge of how to handle finances may help you live a debt-free life and unlock the value of every dollar you earn.

Will Rogers once wrote, ‘Too many people spend money they buy things they don’t impress people that they don’t like.’ 

It is true that one of the reasons why we get into debt is our lack of dealing with our spending behaviour. If what you earn is equal or less than what you spend, you are standing on quicksand. The subject of financial literacy is broad, covering areas such as:

  • Financial behaviour – is any human behaviour on managing money. These behaviours include one’s saving and spending. It shapes how you acquire and allocate your finances.
  • Financial attitude – this is generally an individual’s state of mind about finances that is a result of their environment and upbringing. If someone grew up in a poor family and with parents struggling to make ends meet, they will have an attitude that is different from someone who comes from a rich background.

In the end, financial literacy does not matter what background you come from, as long as you are determined to acquire knowledge and apply it in your life, you will be successful in managing your finances.

Effective management of your personal finances can lead to greater opportunities and the accomplishment of more goals in life. Actually, it is not an easy thing to spend your money wisely, though using some sources like can significantly simplify that process.

Why is financial literacy so important?

To date, there are complex financial instruments that require an understanding of how to analyse them and choose the best investment plan. For many people, the lack of understanding of those financial instruments will make them lose their money through making bad investment decisions. In the past, the financial instruments were easy to understand, and they demanded less knowledge for spotting and making good investment decisions.

It is believed that nearly half of the population does not have money by the time they retire making them depend on their pension funds. Another notable concern has been an increase in credit card usage. It is at an all-time high, which shows the people’s attitude towards borrowing and spending. Some Americans end up taking one credit card to settle another credit card creating a cycle of debt. 

What can you do to become financially literate?

Becoming financially literate is a lifelong goal that requires constant sharpening to ensure that you make sound decisions and, hopefully, achieve financial success. Here are the seven steps to help you become financially literate and be in control of what you earn and how to spend it.

1) Read many books on financial literacy

There are many books on the subject of managing money and being financially literate. Some are for the professionals and others are written for the general audience.

Depending on your academic background and ability to understand, choose books and materials produced by recommended professionals. You can also check out reviews on finance programs developed by gurus, such as Investing Daily Personal Finance by Jim Fink, and gather opinions about its efficiency.

The learning process may be different from one person to another, therefore we advise you to choose the best learning method that works for you.

2) Have a budget and start tracking your expenses 

Tracking expenses helps you know how you are spending your money, and where possible, cut unnecessary expenses. Creating a budget helps you to efficiently allocate your finances towards essential things and avoid impulse buying.

You may consider using digital tools to help you manage your finances. Some of these online tools will continue to help you with tips and publications to help you improve your knowledge base.  

3) Have an emergency fund 

The emergency fund helps you to manage certain risks that you may face in life. These emergencies may be serious health problems, or when you’re on the job-hunt. It is recommended to make it at least six months of your earnings, and should only be used as a last resort.

4) Ask for expert advice

Most people make bad financial decisions by asking for advice from the wrong people. There are many experts you can ask so that you avoid making costly mistakes, at the same time ensuring that you use every opportunity to invest, wisely.

Dealing with an expert has an advantage because they will make recommendations that are based on your situation rather than giving generalized advice. 

5) Start investing

The key to achieving financial success is in multiplying your earnings. One way to do it is through investing in different assets. Consider having an online broker to help you handle all your investments. A financial advisor will help you spot and invest in good assets with a good return on investment.

6) Check your needs over time

As we get older, our needs change. What used to be your top priorities in your twenties may become unnecessary when you’re in your thirties. Ensure that you constantly assess the needs and avoid having unnecessary expenses.

Also, your investment portfolio should be well balanced, with more long-term investments when you’re still young slowly changing into short term investments when you’re older.

7) Invest in your education

You can constantly improve your financial literacy by taking courses. It may be online or at your local college, ensure that you choose a course that suits your skills level. This will help you unlock the ability to make better decisions.

Frequently asked questions about financial literacy

Here are some of the most common questions people ask related to financial literacy.

When is the right time to start investing in stocks?

You can start investing at any time, as long as you have knowledge of how it works or seek the help of experts. can help you start your investing journey, by giving you tips and advice.

How can I spot a scam from a real investment?

There are many tactics used by scammers to defraud investors. The best way is to arm yourself with the right information about genuine investments, as well as tactics used by scammers.

How does financial literacy help?

It helps you make better financial decisions, which helps you get more value from your money. can help you to learn how to save, earn more, and manage debt, which is important in living a happy life.