To be financially literate is being able to manage your finances. This means you know how to spend your money and save for the future. It also entails that you know how to borrow money without getting drowned in debt.

Typically, some people live a paycheck-to-paycheck kind of lifestyle, but you don’t want to experience that. Others don’t even have monthly savings. But in financial literacy, the ultimate goal is to make you understand the basic concept of finances.

Understanding Financial Literacy

Financial literacy is being knowledgeable. It means possessing a skill that will allow people to manage their money smartly. It also means knowing fundamental facts about money. With this, you will understand the standards and routine practices to manage money effectively.

A financially literate person also knows how to apply this knowledge and improve at it as time goes on.

Basic Budgeting

One of the necessary skills in smart money management is being able to budget your money. However, it is easier said than done. As mentioned above, some people live paycheck-to-paycheck lifestyle because they tend to spend so much. Some don’t even know if it is more than what they are earning or not!

Budgeting requires that you analyze your monthly income and your monthly expenses. Budgeting will help you track your expenses.

Set aside a portion of your monthly income for food, transportation, bills, and debt payment. Set a small part of it for your savings and another small part for emergency expenses. It will help if you differentiate your needs from wants.

Monitor your expenses

Another smart way of managing your finances is to monitor how you spend your money. Keep a list of your expenses and read them after a month. By doing this, you will be aware of where you’re spending your money and where you should be spending it instead. This can also help in setting up your monthly budget.

Creating a budget is good, but tracking where you spend your money is better. Doing so will prevent you from overspending on unnecessary things. If you don’t monitor your expenses, you will run the risk of following an unrealistic budget but never achieving your financial goals.

Prioritize your Savings

Your savings is one of the essential components of the budget. This should never be forgotten when making your monthly budget. This is where you will get money for your retirement, emergency hospital expenses, car repair, and for future big-ticket purchases.

Make a financial commitment that a certain percentage of your monthly income is allocated only for your savings. Getting used to saving will develop a good habit that will help you a lot in the future. Don’t make savings your last priority.

Borrow money the smart way

If your monthly budget, income, and savings are not enough to cover your emergency expenses, borrow money from your family and friends, or get a personal loan from and other credible lenders.

With personal loans, you can use the money, however, and wherever you want; weddings, home remodeling, car repair, debt consolidation, to name a few.

Most personal loans are unsecured, meaning you don’t have to set up collateral to apply for a loan. With unsecured loans, you will not be at risk of losing your asset if you delay payment. However, delayed payment can hurt your credit score.

Only apply for a personal loan if it is only the last resort. Shop around for banks and lending companies that can offer you a low-interest with no surprise charges or fees. The good thing about personal loans is that they deposited fast to your account within a week from approval. Always remember, pay your debts on time.

Still in debt? Pay it off

It is always smart to get out of debt as soon as possible. Debt slows down financial progress. What you can do is to set aside a portion of your income to pay off debt – be it emergency debt, student loan, car loan, home loan, or personal loan.

You can pay off debt using the Snowball Method or Avalanche Method. In the former, you pay off your smallest debt first to create a momentum, and then you go bigger after. In Avalanche Method, you make minimum payments to low-interest accounts and put as much extra money to the debt with high-interest.

Don’t be afraid to ask help

Managing your finances can be daunting for you. You might be overwhelmed on how to make a budget, determining your wants and needs, knowing which debt to pay first, or basically how to spend your money. Don’t worry because there are people who will be willing to help you.

You can ask help from financial advisers to help you understand financial dynamics and fundamental elements to take into consideration in managing your finances.


Managing your finances can be a challenging task. You might think that you have your money under control, but you don’t. By now, you already know where you stand in your financial literacy. You can now apply the tips mentioned above in smartly managing your finances.