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Financial literacy: how not to spend the entire salary and earn more
Sep 20, 2021

Reading time 4 min.

What is financial literacy?

This is a set of skills and knowledge that help you not to spend too much and increase your savings. These include budget planning, knowledge of credit and insurance products, the ability to manage money, pay bills correctly, invest and save.

To increase financial literacy among the population, it is enough to master the theoretical basics and applied techniques. This will allow you not to worry about debts and unforeseen situations, be calm for your long-term future and live with dignity in the present.

The financial consulting firm Ramsey Solutions has derived three main approaches used by people who know how to handle money.

  • Maintain a monthly budget. To learn how to spend less than you get, you should keep a budget. It is necessary to take into account income: salary, investments, tax deductions; fixed expenses: rent, utility and credit payments; variable costs: food, shopping, travel and entertainment; savings.

  • Make a "safety cushion". It will save you in an emergency situation like losing your job or a serious car breakdown. The minimum amount of reserves is income for 3-6 months, the optimal amount is for 12 months.

  • Invest in the future. You can not take new loans until you have paid the current ones, as well as spend the loan money on entertainment and clothing. It is worth thinking about pension contributions and insurance, investing in training and buying only the equipment that is needed for work. For example, if you are a designer, a powerful computer will be a good purchase, which will pull complex 3D modeling programs and help you earn more.

How to evaluate your financial literacy

To evaluate your money management skills, honestly answer ten questions. For each "yes", give yourself one point. The higher the score, the higher the financial literacy.

  1. Do you keep a monthly budget that includes all basic expenses and income?
  2. Are you taking steps to reduce debts and credit obligations?
  3. Do you know your credit rating?
  4. Do you realize how much money you spend on average for life within 3-6 months?
  5. Do you have a reserve fund that will allow you to survive sudden major troubles without borrowing money?
  6. Do you know how compound interest works and what role it plays in the growth of invested funds?
  7. Do you understand what types of insurance will help you secure your finances and investments?
  8. Do you use tax deductions when possible?
  9. Do you pay your utility bills on time?
  10. Do you understand the difference between investment and insurance?

How to improve financial literacy

The right attitude to money is the basis of the life philosophy of a financially literate person. To do this, you need to develop financial thinking and maintain discipline.

Plan your budget
Create a spreadsheet in Excel, a notebook, or use special applications. First, just record all your expenses and segment them. Fixed expenses are rent, mortgages, loans and utilities, variable expenses are everything else. They can include money for food, clothing, entertainment, recreation, household goods and self-care. Also add up all your income. After three months, analyze how much you spent and received, and think about what you can give up in the future. These will be difficult decisions, but they will help to reduce costs. Plan your budget so that you can save a certain part of the money. Be honest and realistic. It is necessary to deduct savings and fixed expenses from income. You will have to put all the variable expenses into the difference. One of the working schemes of budget planning is the 50-30-20 rule. If you follow it, 50% of the money should be spent on necessary fixed expenses, 30% on optional variables and 20% on savings and investments.

Make savings
Open a savings account and set up automatic replenishment from each salary. Determine the amount of deductions based on the planned budget. To begin with, it can be an amount of several thousand rubles. The money in the bank will also grow due to interest. Experts advise storing them in several currencies. A savings account is an additional savings for retirement and a reserve for serious needs, such as unplanned medical expenses and unforeseen circumstances. Do not withdraw money for purchases for the sake of pleasure, and try to make up for what you spent as quickly as possible.

Change your attitude to shopping
Thinking is arranged in such a way that sometimes it is difficult for us to refrain from impulsive acquisitions, even with a budget planned out to the smallest detail. This is influenced by advertising, marketing, the environment, the situation and the internal state when we make decisions. But there are several techniques that will help you not to fall for the tricks of brands and your own brain.

-Take a pause if you don't understand whether you really need the thing you like. Postpone the purchase for at least 24 hours, or better yet, for several days. After this time, it will be easier to figure out whether it is worth spending money.

-Use the stranger's test to determine the value of the purchase for yourself. Imagine that you are offered to get what you want for free, or an equivalent amount of money. If you chose the latter, you don't need the thing.

-Don't make shopping an incentive. Find other sources of pleasure. Instead of walking around the shopping center, it is better to go to a park or a museum, do sports, take a bath, read your favorite book or watch an interesting movie..

Leave your comments / questions



Thank you for the insights on financial literacy. This work is so important as many of us did not learn this in school and were not taught by our parents. I love the idea of the 24 hour pause before purchasing. It really helps give you perspective.