While the adage of “knowledge is power” holds weight, ignorance on the other hand, is not “bliss”, especially with millennials chalking up an average debt of $45,000 and with inadequate financial literacy, are struggling to manage their personal finances and build wealth.
Robert Lindquist, an Ashford University professor, provides 4 tips on how young executives can understand the basics of financial literacy, think strategically, and get on the path to financial independence:
Money is Freedom – To accumulate wealth, we need to save money. This seems simple but many say that bills prevent them from saving. The trick is not focusing on the amount of savings, but the process. Because it takes discipline to save money, the key is semi-enforced saving – paying yourself first and using leftovers for bills and other needs. Even $1 a day will make a difference.
Cut the Card – If money equals freedom, debt equals servitude. We live in a credit-driven society, with high credit card balances and finance rates. Although we need to establish credit for larger purchases, such as a home, the key is to avoid creating debt. To reduce credit card obligations, it’s necessary to cut the cards and apply any extra money, such as a bonus or birthday gift to debt reduction. Creating a strategic plan for lowering balances and switching to a debit card can expedite the process.
Know Your Debits & Credits – It’s important to understand monthly spending patterns and budget accordingly. This entails creating a personal income statement to identify revenues and expenses, and a balance sheet to determine financial worth. Just taking a look at spending by category can help plan for future expenses. Understanding the difference between a need and a want and carving out money for emergencies will further ensure a well-balanced budget.
Invest in Your Future – Many are intimidated by the term ‘investment’ and unsure about the steps for securing a profitable future. Although an average person may not want to play the stock market, they can invest in their future with basic investment plans. Additionally, owning property offers a number of financial benefits so a home purchase can be a great investment.
It is imperative that young executives start early with financial planning and learn financial literacy in order that they do not struggle with debt all of their working lives right through the age when executives actually plan to retire. Failing to plan is indeed planning to fail.
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