It is Financial Literacy Month, which is a great time to reflect on your own financial literacy skills. Your ability to manage money, in a lot ways, depends on how educated you are about how money works, and the concepts behind your finances.
One of the truths about money management is that understanding how money works is vital. There are people who understand money to the point that if they only had a dollar, they could eventually work their way out of financial trouble with the help of good money management. Others receive huge windfalls, and in a couple of years have blown through all of that money and are left with nothing because they don’t understand how money works.
The Importance of Knowing How Money Works
Before you spend money, or decide what to do with your money, it’s a good idea to know how money works. Some of the things to know about money — and how it works — include:
- Understand the difference between earning interest and paying interest.
- Learn what things are worth borrowing for, and what things aren’t.
- Know how to take calculated risks, whether it involves investing for retirement, or for something else.
- Distinguish between needs and wants.
- Look for ways to reduce expenses.
- Use your skills to earn more money.
- Find ways to use money to make money.
- Enhance your skills and abilities so that you are considered more valuable.
Part of successful finances is learning how to more effectively interact with money, and realize that you should be the one in control of your money. If you are in a tough financial situation, your difficulties in digging out can be compounded by a lack of understanding about how money works. Taking the time to understand how to use money to your advantage, and how to use money as a means to an end, can help you make the most of what you have — and possibly even earn more money.
Great Resources to Help You Learn about Money
As you learn about money, and how it works, there are number of resources that you can use. Here are some of my favorite book resources for learning about money, and how to improve your relationship with it:
- Your Money or Your Life: I love this book because it’s all about priorities. It’s about learning how to identify your own priorities in life, and to match up your finances with those priorities.
- Debt is Slavery: A very simple book that takes a look at debt, and other aspects of money. A straightforward approach to money, and how it works, that can help you learn to better manage your financial resources.
- The Millionaire Next Door: Sometimes we think that there are a lot of tricks related to managing money. However, you might surprised at some of the commonsense actions you take to improve your financial situation.
- The Bogleheads’ Guide to Investing: Learn a little bit about investing, and ways to take calculated risks, as well as how to put your money to work for you in index funds.
- The Intelligent Investor: A great guide to value investing, and using your money, as an investor.
- The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime: While I don’t think that you need to be a millionaire to be successful in life, this book is great for challenging assumptions about money, and helping you learn how to use money.