Did you know that about 11.5 million people in the UK have less than £100 in savings? A financial capability survey revealed this alarming statistic, which shines the spotlight on the general lack of know-how in money management.
Being financially literate in today’s day and age is certainly an asset, but how do you become a financially literate individual?
Financially literate individuals are empowered by their knowledge and skills in managing their money. They understand core financial concepts, allowing them to make informed decisions that contribute to their financial well-being. This includes strategies for saving, investing, budgeting and debt management, all aimed at achieving their financial goals.
It’s never too soon to start thinking about financial matters. There’s a lot to learn in terms of finance, whether it’s about effectively handling your personal finances or applying for payday loans. Additionally, you cannot forget the essentials like bank accounts, fixed deposits, and the like.
You may be efficient at handling your day-to-day expenses, but have you planned for a life beyond retirement?
Do you know how to manage debts and set your affairs?
We’ve drawn up a pocket guide, that acts like a financial dictionary to help you understand some of the most important financial concepts.
Let’s get started.
1. Estate Planning
When it comes to planning for the future, estate planning is perhaps not the most common or pressing topic to talk about. But a good financial planner will always want to be two steps ahead of the rest.
What Is Estate Planning?
Estate planning essentially involves creating a plan where you set your estate affairs in order. The plan helps you list your assets like property, money and investments, and chalk up what happens to them after your death.
The draft of your estate plan can include one or more of the following planning services:
- Wills
- Trusts
- Power of Attorney
- Advance Directives
Though these may appear to be complex legal terms at first glance, they’re pretty straightforward to set up. You don’t need an attorney to make an estate plan. With online and offline estate planning options available, all you need is the right partner for your estate planning needs. Zenco is one such online legal service provider to help you set your affairs in order with relative ease. Expert consultation gives you a clearer picture of the hows, whats and whys of planning your estate.
2. Loans
What Are Loans?
In essence, a loan is borrowing money. Whether you borrow from a bank or a private money lender, you have to pay back the amount you borrowed along with the interest charged.
People take out loans for lots of reasons, from buying a car to funding a holiday. As per your needs and requirements, you can choose from a range of loans from different lenders. There are two common types of loans in the UK – secured loans and unsecured loans.
Secured Loans
This loan type offers large amounts of money but requires an asset to be set as collateral or security. The lender has the right to sell the assets if you’re unable to pay them back. For example, the mortgage you take on your home is a form of secured loan. The lender can take possession of your house if you default on payments.
Unsecured Loans
Unsecured loans are typically for smaller amounts of money and do not require any collateral for security.
Peer-to-peer loans, bad credit loans, debt consolidation loans, and guarantor loans are some examples of unsecured loans. The interest rates differ depending on the type of loan you apply for. Usually, banks assess your credit history and credit score before disbursing money. An individual with a poor credit score wanting cash urgently can consider applying for bad credit loans and payday loans, however, these type of loans often come with high interest rates.
3. Emergency Savings
A penny saved is a penny earned – this age-old saying still holds water, signifying the importance of maintaining savings for a rainy day.
Emergencies come unannounced, which is why it’s important to maintain savings for the times when you’ll really need them. Learn to save up a part of your paycheck for the ‘rainy days’ in your life, whether it’s medical emergencies, layoffs, or unexpected repairs. Try to aim to set aside about 20 to 30 % of your monthly income and see it grow into a lump sum savings for emergency use.
4. Credit Cards and Managing Debts
It’s natural to hear the word debt and think about loans. But credit cards are also a type of loan and not paying credit card bills on time can put you in debt.
Credit cards are a valuable financial tool when used wisely. Understanding how they work requires you to read through the fine print. This includes understanding deadlines, rewards, penalties, and credit limits.
Longstanding unpaid credit card bills invite high interest rates on the outstanding balance. You’re also at risk of damaging your credit score, affecting your reliability of paying back debts on time.
5. Insurance
What Is Insurance?
An insurance contract is an agreement between you and the insurance provider, where you pay the provider in exchange for protection or reimbursement in case of a loss. Consider insurance as your security blanket in case something uneventful happens, like disability or death.
Insurance can help you future-proof your income by keeping you from paying out of your pocket. In the UK, there are various types of insurance covers to protect your home, health, income, mortgage, loan payments, and dependents.
However, before purchasing insurance, it’s good practice to assess your priorities. Weigh the cost and coverage of the insurance with the risks and protection it offers. Also, don’t forget to consider your existing coverage from your employer or benefits from an existing life insurance package before you finalise your insurance plan.
In Summary
You don’t need to reinvent the wheel when handling money matters. Take financial literacy as a necessary skill for you to be continually invested in across the various stages of your life. An understanding of where you are today and where you want to be can put you in the driver’s seat of efficiently managing your money matters.
