The lack of financial literacy in the UK has been widely discussed for years now, with the continued absence of financial and money management lessons at secondary schools exacerbating this issue.
According to research conducted by Freetrade, almost half of the UK lacks basic financial literacy skills, with 48% of respondents failing a test that covered four key areas of finance and fiscal management.
But what are the benefits of financial literacy with regard to financial planning, and what are the key steps to managing your money more effectively?
Step-by-Step Guide to Plan Your Finances
Appraising the Benefits of Financial Planning
Initially, attempting to save money and manage your finances more effectively can appear daunting, especially if you lack financial literacy skills and disposable income in the current cost-of-living crisis.
However, the rewards are tangible when saving money and making your disposable income stretch further, while it’s possible to start small as you learn and scale your efforts in line with earnings and knowledge.
In simple terms, better financial planning translates into more savings and disposable income, which in turn enables you to achieve financial security and achieve individual goals.
Similarly, it creates a viable emergency fund and allows you to plan ahead, potentially enabling you to avoid the worst of financial crises in the future.
Managing Debt in Line with Your Income
We all have debts that have accumulated over our lifetimes, from those associated with student loans and car finance to personal loans and credit cards.
Both secured and unsecured debts combine to create your total financial liability, while it’s important that you continue to pay down this total on time in line with your individual agreements. It’s also important to avoid late or missed payments, as this will prevent fees from being added and ensure that your interest repayments aren’t compounded.
To help ensure that you manage and pay down your debts effectively, we’d recommend that you develop knowledge of your exact income, outgoings, and how much disposable income you have to spend each month.
This certainly helps with monthly planning, which is half the battle when managing your finances and achieving financial security over time.
In instances where you’re over 55 and a homeowner, you may want to consider leveraging the value of your property through equity release. This can afford you access to a lump sum of cash, enabling you to pay down or even clear your debt and make the concept of retirement far more affordable.
Saving and Creating an Emergency Fund
In instances where your debt is managed and you’re able to optimize the amount of disposable income that you have each month, you can start to embrace the idea of saving money and accumulating wealth.
It doesn’t matter how much you’re able to put away or if you’re unable to save the same amount each month, as the key is to commit to saving money and make this a positive habit over time.
When saving money regularly, you can even create an emergency fund, which provides a financial safety net and coverage for unexpected payouts or expenses.
This type of preparedness is key, with this having been borne out by the ongoing energy crisis and monthly gas bills in the UK.
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