Navigating finances can feel overwhelming, and without a clear understanding you could be left ill-equipped and vulnerable to financial stress. Being financially literate can change your outlook toward money and help you make smarter financial decisions. From budgeting, saving, and building credit, to borrowing, repaying debt, or investing, we’re sharing these 5 steps to help you become financially literate.

1.    Track your cashflow

Keeping on top of your cashflow by regularly tracking your income and expenses will help ensure you don’t spend more than you earn. It’s also a useful tool when it comes to finding ways to boost your income or cut back on your expenditure. Ideally, your income should exceed your expenses with any leftover cash going into an emergency savings fund or used to reduce other debt once your bills are paid.

2.    Use a budget

The best way to keep track of your income and expenses is by setting and following a budget. That can take some getting used to and requires a fair bit of discipline, a key part of financial literacy. But by developing a habit of using your budget, it is possible to reduce overspending and live within your means. And, over time, that can you empower to make smarter financial decisions.

3.    Build your credit profile

Your credit score affects many areas of your financial health and can impact your ability to access finance for things like a mortgage, a car, a credit card, even utilities such as phone or electricity. To help build and improve your credit score:

• Only apply for credit when you genuinely need it
• Consistently repay your debt in full and on time
• Don’t exceed your credit limit on your credit card
• Keep track of your credit score by requesting a credit report

4.    Understand good debt vs. bad debt

Knowing how to make your debt work for you and understanding the difference between good and bad debt is a sign of being financially literate. Good debt is money borrowed to improve your financial position by creating wealth. A good example of good debt is a home loan which is used to buy an asset (property) that increases in value. Another good debt is a business loan: money that is invested in a business, product, or idea to generate a return.

Bad debt is money borrowed for everyday expenses, such as groceries or bills, because you don’t have the money to pay for them. Bad debt often ends in a downward spiral as you borrow more money to pay off your existing bad debt. Credit cards – unless you repay them in full each month - payday loans and part payment plans are examples of bad debt, as they can cause more harm than good. With all of these, borrowers will generally end up paying back more than they borrowed because of high interest charges and other fees.

5.    Set savings goals

Learning to save is another important lesson in becoming financially literate. Whether it’s a traditional savings account linked to your bank account, KiwiSaver, retirement savings or an emergency fund, it’s helpful to define your savings goals so you know how much you can set aside each month once your bills and other expenses are taken care of.

Becoming financially literate can feel overwhelming at first, but tackling your finances head-on, controlling your spending, managing your debt, and working towards financial goals can help you feel more in control of your financial future.

For more financial advice that’s tailored to your unique situation and circumstances, contact Mortgage Express today to speak to an adviser. Get help with budgeting and financial planning designed around your financial goals or get advice for buying a first home or planning your retirement.