Financial Proficiency: How to Take Care of Your Financial Health

Understand what financial proficiency is and how important it is to improve your financial health and be able to live a more peaceful life.

Although in the first years of the school curriculum we study several different subjects, such as history, mathematics and geography, there is still an area that many people end up worrying about only when they start to have problems: finances .

Of course, we learned basic things, like the fact that money is used to buy products and services, but formal financial education is still far from reality for many people.

Dealing with personal finances is essential for any individual to maintain a good quality of life , which is why financial proficiency is so important.

What is financial proficiency?

Financial proficiency is a person’s knowledge of how to manage their personal finances or their family’s finances.

Just as English proficiency shows the level at which a person masters that language, financial proficiency determines each individual’s ability to make informed decisions regarding their budget .

As it is a way of measuring a person’s financial ability, financial proficiency can serve as an indicator of the quality of financial education to which each individual had access.

The importance of financial education

Knowing how to deal with finances is really important, but you can’t deny that putting this into practice is not always an easy task .

Far beyond spending less than you earn, a good financial education is what will help you understand various financial concepts and services , such as interest, loans, installments and investments, in order to improve your financial health.

A survey carried out by Institute of  Data Popular, for example, showed that 82% of Pak consumers were unaware of the interest rates involved when contracting a loan service, data that shows the need to improve financial education in the country.

Although loans can indeed be a great option for those who need a considerable amount of money in a short time, it is essential to understand exactly what this type of operation involves in order not to compromise your financial health .

What is financial health?

Financial health is the combination of different characteristics that will define how each person deals with money.

In addition to the already mentioned basics of spending less than you earn, good financial health also involves having financial security for the future , making conscious decisions to enjoy your money, honoring financial commitments and achieving your own financial goals.

An example of how to take care of financial health is building a emergency reserve. This reserve is an amount of money that can be used in case of an emergency or unforeseen event , such as losing your job or having a high medical expense due to an accident.

Good financial health is what gives you peace of mind to live life without stressing out every day if you’re going to have money to pay the bills at the end of the month and still know that you’re going to be able to fulfill your wishes.

How to maintain good financial health

There are some simple steps that can serve as a basis for anyone who wants to maintain good financial health, but the most important thing is to understand your relationship with money and learn to plan .

You can check out our article with tips for organizing personal financesfor more details, but here are some of the most important information to improve your financial health :

Know your expenses and sources of income

It may seem obvious, but it’s exactly because it’s something so simple that a lot of people end up forgetting to really keep track of everything they earn and everything they spend .

Knowing exactly what your income and expenses are will help you avoid spending more than you earn, a golden rule for anyone who wants to maintain personal financial health.

Set financial goals and objectives

When you set goals and objectives and really commit to achieving them, it becomes much easier to know how to spend and how not to spend your money.

It doesn’t matter if your goal is something simple like buying new clothes, or something complex like traveling abroad, what really matters is that you set an important goal to be achieved after some period of time and stay focused .

Always research before buying

It may be that you have already stopped for some time to look for alternatives when you are going to make a higher-value purchase, such as a cell phone or a computer, but it is not just at these times that research can help you save.

A good example that is part of our daily lives is going to the market. Always stop to look at alternatives, check out other brands, see if there are any promotions or something like that. You can find products in different packaging sizes that end up compensating more and that help you save money in the end .

Build your emergency reserve

Build a reserve considering your own spending profile, guaranteeing, for example, six months of your salary so that you can meet all your financial commitments even without any source of income.

It is important to know that this money is exclusively for unexpected cases . Don’t spend any of it unless it’s strictly necessary, so you get more balance and peace of mind so you don’t go through any big squeeze.

Invest in your financial proficiency

Improving your finance knowledge will be essential so that you can make better decisions every day and further increase your financial health.

This is the knowledge that will help you decide on your investments, plan high-value purchases, establish spending rules and limits, and contribute to ever- increasing financial peace of mind .

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