The Greatest Contest
I often reflect on my struggle over the years to become financially literate as a great contest with difficult challenges and ultimately satisfying rewards. So what are some of the challenges I faced, and I expect that you will face, in your quest to become financially literate?
Ironically, the greatest challenge you’ll face is often you yourself. To learn, we must have the willingness to learn. This ability goes by many names: initiative, positive attitude, willpower, and determination. Without these attributes, plans for success are nothing more than dreaming.
The Struggle Within: You vs. Yourself
The Importance of Willpower
One of the main reasons people fail at managing their money is a lack of willpower. Without the determination to stick to a plan, even the best financial strategies can fall apart. Willpower is like a muscle that you need to exercise regularly. The more you practice self-control, the stronger it gets.
Destructive Behaviours
Destructive behaviours set us up for failure: laziness, unwillingness to learn, relying on poor advice, and giving in to our urges, to name just a few. Let’s break these down:
- Laziness: It’s easier to ignore your finances than to manage them.
- Unwillingness to Learn: Financial literacy requires effort and time.
- Poor Advice: Listening to the wrong people can lead to bad decisions.
- Giving in to Urges: Impulse buying can ruin your budget.
Real-Life Examples
If you haven’t been taught financial literacy in school or by your parents, you learn by your mistakes. Most people have had at least one or two terrible experiences with personal debt in their lifetime.
With so much credit now available to the average person, it takes superhuman willpower not to get swept up into living above your means. Since many are financially illiterate, they simply follow the example set by their peers or social group (aka “the herd”). Unfortunately, the norm for the herd is to live in the moment and satisfy urges for instant gratification.
Here are some common thoughts that can lead you astray:
- “Well, everyone else is in debt, so why is it a problem for me?”
- “The whole gang is going on a vacation, and I have a credit card just like them, so why not?”
- “How can I drive a subcompact car with the basics when all my friends have luxury sedans with bells and whistles? What will my friends think?”
- “We always go to the restaurant and club Friday night, I feel obligated to follow along.”
- “What is this nonsense about saving for retirement? That’s an eternity away.”
The Path to Financial Literacy
Facing Your Emotions
Your quest for financial literacy does involve some basic mathematics, learning, and discipline. These challenges are actually very small compared to the greatest enemy you’ll face, which is your emotions. It’s very difficult to go against the herd, chart your own course, and face the emotional fallout from your social group. But if you plan to win the financial literacy contest, that is exactly what you must do.
Learning the Basics
To start your journey, you need to learn the basics of financial literacy. This includes understanding:
- Budgeting: Know how much money you have coming in and going out.
- Saving: Set aside money for emergencies and future goals.
- Investing: Make your money work for you through stocks, bonds, or other investments.
- Debt Management: Learn how to handle loans and credit cards responsibly.
Creating a Budget
Creating a budget is the first step to taking control of your finances. Start by listing your income and all your expenses. Then, see where you can cut back. For example, if you’re spending a lot on dining out, try cooking at home more often. Small changes can make a big difference over time.
There are a number of budget planning helpers out there. You will find a great article, and a free financial tracker template at Master Your Finances: Easy Budgeting Tips for Beginners
Saving for the Future
Saving money is crucial. Aim to save at least 20% of your income. This might seem tough at first, but start small and gradually increase the amount. Set up automatic transfers to a savings account so you don’t even have to think about it.
Investing Wisely
Once you have a good handle on budgeting and saving, it’s time to think about investing. Investing can help your money grow over time, but it’s important to do your research. Consider talking to a financial advisor to get started.
Managing Debt
If you have debt, make a plan to pay it off. Start with high-interest debt like credit cards. Pay more than the minimum payment each month to reduce the principal faster. Avoid taking on new debt whenever possible.
Staying the Course
Overcoming Peer Pressure
One of the hardest parts of becoming financially literate is dealing with peer pressure. Your friends might not understand why you’re making different choices. They might even try to convince you to stick with old habits. Stay strong and remember your goals.
Celebrating Small Wins
Celebrate your progress along the way. Did you stick to your budget this month? Great! Did you pay off a credit card? Fantastic! Recognize and reward yourself for these achievements. They’ll motivate you to keep going.
Learning from Mistakes
You will make mistakes. Everyone does. The key is to learn from them and keep moving forward. If you overspend one month, adjust your budget for the next month. If an investment doesn’t pan out, analyze what went wrong and use that knowledge for future decisions.
Practical Tips for Financial Success
Track Your Spending
Keep a record of every penny you spend for a month. This will help you see where your money is going and identify areas where you can cut back. Use our free expenditure tracker.
Avoid Impulse Purchases
Before making a purchase, ask yourself if it’s a need or a want. If it’s a want, wait 24 hours before buying it. Often, you’ll find that the urge to buy fades away.
Build an Emergency Fund
An emergency fund is money set aside for unexpected expenses like car repairs or medical bills. Aim to save three to six months’ worth of living expenses.
Plan for Retirement
Even if retirement seems far away, start saving now. The earlier you start, the more time your money has to grow. Take advantage of employer-sponsored retirement plans and any matching contributions they offer.
Educate Yourself
Take the time to learn about personal finance. Read books, attend workshops, or take online courses. The more you know, the better equipped you’ll be to make smart financial decisions.
You Can Do It!
The contest between you and yourself is a lifelong journey. It’s filled with challenges, but also with great rewards. By taking small steps and making wise choices, you can achieve financial literacy and enjoy the benefits it brings. Stay focused, stay determined, and remember that every little bit of progress counts. You have the power to take control of your financial future.
In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.
Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, we are not a qualified financial advisors. We just relate financial management to our own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of ours came from expensive experiences.
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