Beginner’s Guide to Financial Literacy: Smart Money Management for Teens & Young Adults 

What Is Financial Literacy?

Financial literacy refers to managing money wisely to ensure financial stability and achieve long-term financial goals. It not only helps you build wealth but also provides financial security in the future. One can develop financial literacy through financial education and learn about the concepts like savings, budgeting, investment, and more. In simple words, financial literacy is the outcome of financial knowledge. It refers to the ability to understand and apply the skills to make sound financial decisions.

The personal finance planning depends on 5 key aspects:

• Savings

• Investments

• Budgeting 

• Debt management

• Financial planning 

Why Is Financial Literacy Important for Beginners?

Financial literacy for beginners is essential to enjoy financial freedom and make the right investment decisions. With the rise in inflation in each sector, it has now become more important for everyone to prepare for the future wisely. The financial literacy curriculum also teaches individuals the need of saving at least equivalent to your 4-5 months' income. This is because it ensures that you are financially protected in case of emergencies. 

What Are the 7 Steps of Financial Success for Beginners?

Proper planning with financial literacy knowledge helps an individual manage their finances effectively. However, thoughtful financial planning is divided into the process. Given below are the 7 steps of financial planning for beginners:

• Define Your Financial Goals
  The first step in personal financial education is to set your goals clearly. You can either set a long-term goal like child education or a short-term goal depending on your need. Whatever goals you set, make sure that they are not only realistic but also achievable and time-oriented. 

  Tip: Follow the SMART (Specific, measurable, achievable, realistic, and time-oriented) rule for goal-setting. 

• Collect Financial Details
  Another step in basic financial literacy is to collect and assess your complete financial information thoroughly. Collect certain documents like insurance plans, bank statements and more to determine your total income and spend towards different areas wisely. 

  Tip: Monitor your expenses monthly to align the budget with your financial goals. 

• Assess Your Current Financial Status 
  Learning financial literacy provides a complete overview of your financial commitments. Hence, prepare a list highlighting all your financial obligations like expenses and debts. Analyse the risk associated with each obligation and revise your investment portfolio accordingly. 

  Tip: Use a sheet or google doc. for budgeting. 

• Prepare a Budget 
  Financial literacy education and budgeting helps you monitor your expenses and income regularly. While preparing a budget, ensure that you diversify your investment portfolio into both long-term and short-term options. What’s more? Ensure that you consider learning debt management when learning basic financial literacy. 

  Tip: Assign a part of your income towards life insurance plans like term insurance to protect your family against the unfortunate demise of the policyholder. 

• Create an Emergency Fund
  An emergency fund is essential to fund the unexpected financial emergencies of life. Make sure that you prepare a budget that focuses on accomplishing goals while creating an emergency fund. In personal finance education, you can learn the right investment products for wealth creation.

  Tip: You can also get financial knowledge from expert advisors of PolicyBazaar. 

• Invest in the Right Financial Product
  There are many financial products available according to risk tolerance and financial goals of individuals. Financial literacy for beginners course helps the investor assess their financial health and select the right product to invest wisely. 

  For example, suppose a breadwinner for the family of 5 people has responsibilities and their risk tolerance will be low. Thus, they can choose life insurance plans like term insurance to maintain the financial stability of their loved ones even in their absence. 

• Review and Customise It Regularly
  Your financial strategy also needs a constant check. Monitor your budget continuously and improvise it according to your observations. Moreover, keep updating your budget as your income increases during the year.

Conclusion

Understanding basic financial literacy is crucial for both young adults and teens. One should even learn personal financing in their childhood to maintain financial discipline throughout their life. Although there are many investment options available in India, the best way is to get a life insurance plan like term insurance for a stable future. Term insurance is a pure protection plan that guarantees financial coverage to the loved ones in your absence. 

Note: Calculate term insurance premium using PolicyBazaar online term insurance premium calculator. 

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