Money is one of those things we’re expected to know how to handle without anyone necessarily teaching us how. You finish school, start earning a wage and suddenly you're dealing with superannuation, credit cards, savings, insurance and maybe even a home loan. Not to mention trying to navigate taxes when the closest thing you learnt in school was how to calculate the area of a triangle. It’s a lot to pick up as you go.
The good news is that becoming financially literate doesn't mean you need to become some sort of finance expert or check the share market before breakfast. It’s really just about understanding a few basics well enough to make better decisions with your own money.
These five pillars are a good place to start.
1. Earn: Understand How Money Works
You can begin increasing your financial literacy by familiarising yourself with how money works, and a course like an online Applied Finance program can help you develop this knowledge in a specialised context. It’s about understanding how systems and financial decisions impact how you earn, manage and grow your money.
It can help to understand how qualifications, experience and special skill sets can impact your earning potential. Or how there are other ways that people can earn money outside of a conventional wage. Taxes, superannuation, employment benefits and other rewards all factor into the actual value of your earnings.
The better you understand these ideas, the easier it is to assess your career options, know your options, and make smart choices about your financial future. You don’t have to be on a constant grind to earn more money. Instead, learn how earning works and how you can use your knowledge and career moves to manage your financial growth.
2. Spend: Know Where Your Money Goes
We often think of spending as the most obvious element of our finances. But being financially savvy is about more than how much you spend each month. It’s also about knowing the difference between a want and a need.
It's also about knowing how spending now could impact you in the future. As well as making choices that are aligned with your overall financial goals. There are many concepts this could entail, but understanding the basics of budgeting and cash flow is a great place to start.
Also, familiarise yourself with the opportunity cost of your spending. Every purchase you make comes down to a choice. If you spend your money on one thing, you can’t allocate it towards something else. Whether that's saving for a house, investing, travelling the world, or building a safety net. Getting into the habit of understanding your spending habits can help you make more intentional decisions with your money.
Try budgeting as a starting point. Having a monthly budget can help you understand where your money goes each month. But it can also help you identify trends in your spending habits. You may not notice them when looking at your expenses day to day.
You don’t necessarily need to cut out all the fun stuff from your budget. But when you know what you’re trading your money for, you can make choices that you’re happy with.
3. Save: Build a Financial Safety Net
Saving is about more than just setting money aside for something you want to buy in the future. It can also provide financial breathing space should your circumstances change and help you avoid using credit if unexpected expenses come up.
Creating savings means understanding concepts like financial goals, interest, inflation and how putting money aside regularly can make a difference. Having an emergency fund can help give you a foundation and you can have separate savings goals for big-ticket items like a home deposit, education, travel and renovating.
Another benefit of saving is understanding how your money can grow over the long term. Interest earned and compound growth can significantly affect the value of your money if you leave it invested for longer periods. That’s why starting good saving habits early can have a payoff that’s much greater than your day-to-day bank balance.
4. Borrow: Understand Debt Before Taking It On
Borrowing money isn't always a bad financial idea. A home loan, for example, can help someone buy a property they’d otherwise spend decades trying to purchase outright. The problem arises when you don't know what that debt is actually going to cost you. Financial literacy means understanding when borrowing may be appropriate, as well as the true cost and risks involved.
Mortgage rates aren't the whole story. Fees, loan terms, how repayments are structured, and the interest charged over time can make two seemingly similar loans very different. So, don’t only focus on whether the weekly or monthly repayment seems manageable. You need to pay equal attention to the total cost of the loan as well.
Credit cards and buy now, pay later services also deserve the same scrutiny. Small repayments may not seem so bad on their own, but if several turn up all at once, they can quickly snowball into a larger problem. Knowing how much you owe, when payments are due, and what happens if you miss them can prevent manageable borrowing from turning into a much bigger financial headache.
5. Protect: Safeguard Your Money and Your Future
Financial literacy goes beyond making and managing money. It's also about protecting yourself from situations that could wipe out the progress you’ve made.
That can include having an emergency fund, choosing appropriate insurance and keeping important financial information secure. A few things worth considering include home and contents insurance, car insurance, private health cover, or the insurance included through your super.
It’s also worth paying attention to scams and online security. Be wary of unexpected messages asking for banking details, use strong passwords and don’t assume something is legitimate simply because it looks professional. Most scammers use incredibly sophisticated techniques these days, so if you’re ever unsure, always err on the side of caution.
Protection will look different for everyone, so the goal isn’t to take out every insurance policy available. It's about identifying the risks that have the potential to cause significant financial problems and deciding whether you can afford to handle them on your own and where it makes sense to transfer that risk.
Making Sense of Your Money
Being financially literate doesn’t mean never making a questionable purchase again or having every dollar perfectly allocated. Most people will still occasionally spend $70 at the shops after going in for just one thing.
What matters most is knowing how much you earn, being mindful of how much you spend, saving regularly, understanding what you're signing up for when you borrow, and ensuring you've protected yourself financially where it makes sense.
Get those five pillars right and managing money starts to feel a whole lot less mysterious.
