Understanding finances can be quite a difficult task. Let’s be honest here; no one teaches you how to calculate taxes in school or how interest rates really work. That’s why so many people are struggling with their debts. Fortunately, you can always learn more about finances and give a boost to your financial IQ. All you need is a bit of effort and willingness to educate yourself properly. The more you learn the better you’ll be at handling personal and other finances. With that in mind, here are a few ways to boost your financial IQ.
1. Financial IQ and credit score
It’s quite astonishing that a lot of people have heard about a credit score. However, very few people know how it works or what it really is. A credit score portrays your creditworthiness and it shows whether or not you’ll be a risk to the lender, such as a bank, for instance. Simply put, a credit score shows how good you are at paying off your debts. That said, a negative credit score can make a bad financial situation far worse than it is. That’s why it’s crucial that you learn about it and ensure you understand what a credit score is. This is a foundation for your financial IQ, after all. Consequently, maintaining a good credit score will ease your burdens and help you manage your finances much more efficiently.
2. Understanding the negative credit score
Consequences can be dire if you’re not aware of them. As mentioned before, learning about credit score is the key to boosting your financial IQ. More importantly, it’s vital that you understand how negative credit score affects your financial status. As an example, you may be denied for a loan because of a bad credit score or charged with extremely high interest rate, as well. Furthermore, you may have difficulties renting an apartment, finding a job, buying a car and starting your own business. All in all, the worse your credit score is the more dire are the consequences. You can ensure that you pay your dues on time to avoid this scenario. Moreover, you must check your credit history regularly because a simple mistake can ruin your score or you may notice that you’re a victim of a fraud.
3. Use online resources
Boosting your financial IQ doesn’t necessarily have to mean hiring an accountant or an expensive financial advisor. The Internet is filled with vast knowledge about finances and all you need to do is to explore it. Moreover, this information is free, aside from the fact that you’re paying for internet access, of course. Use whatever time you have free to educate yourself. There are plenty of articles, videos, webinars, podcasts and other content online that will help you better understand and manage your finances.
4. Make safe investments
We’ve all been in a situation when the money is good and you have more of it than you currently need. Most people use this opportunity to go on a shopping spree. This can be good or bad depending on your spending habits. Consider investing excess money instead of spending it right away. That way you can multiply your earnings or ensure an extra income for your household. The most common option is the stock market. Making an investment is also a part of boosting one’s financial IQ. It teaches you that money can be spent wisely instead of simply spent on belongings or necessities. However, investing in the stock market requires understanding of the market psychology and the market itself.Every investment has risks involved and boosting your financial IQ comes down to calculating, minimizing, mitigating and managing those risks.
5. Learn how to budget
Budgeting is vital for managing personal finances. You must be fully aware about how much you earn and how much you must spend at all times. Learning how to budget is also a step in boosting your financial IQ. That said, a budget should cover your immediate expenses, such as utilities, rent, bills etc. Once you’ve covered the essentials you can plan how to spend the money you have left over. The key of budgeting is to avoid overspending and going further into debt. For instance, if you pay your bills on time you avoid late fees and excess interest rates. You have to pay bills either way so you might as well do it on time. The money you’d otherwise spend on late fees can be spent on something else, something more important to you.
6. Improve your financial habits
We all have financial habits that can cost us more than we realize. These habits usually revolve around spending. For instance, this month you’ll go shopping and you will exceed the limit on your credit card. After that, you’ll pay just the monthly minimum on your credit card debt and you’ll be fine. This may seem okay to you but in reality, you’ve just boosted your debt far more than you should have. Behind the scenes, the bank is charging a very high interest rate for your shopping spree and your credit score just plummeted from good to bad. Being aware of your bad spending habits is the first step to improving your financial situations. Once you’re aware of the wrong things you’re doing, you can make an effort to improve your spending.
7. Saving money as a part of your financial IQ
Budgeting, investing and spending wisely will ultimately boost your financial IQ. Furthermore, you will see that you have more and more money left over every month. You can always continue to invest but oftentimes it’s better to just save the money for rainy days. There are plenty of ways you can save money for times when you actually need it. As an example, you can save money in an emergency savings account or save it in your individual retirement account. Either way, having money safely stored away is a great way to avoid difficult financial situations. For instance, saving money when you have it can help you overcome issues, such as medical emergencies or loss of employment.
Boosting your financial IQ means learning and understanding everything you can about finances. Managing finances is never easy, which is why it’s essential to know how to do it properly so that you can avoid crippling debt.