April is observed as Financial Literacy Month. And fittingly so. Financial literacy is an area that many people are not very knowledgeable about. The term itself might not be one that people are even familiar with. But look at the two words in the term:
- FINANCIAL: Having to do with money or general finances
- LITERACY: Competence or knowledge in an area
So financial literacy is a person’s ability to use their knowledge and skills to manage money and general finances well. In recognition of this month, we are explaining the meanings of some key terms that you should know for your own personal financial literacy.
Budgeting is a lovely concept that most people aspire to, but never actually get around to doing. According to the Plain English Guide to Financial Terms, financial literacy is “A plan of spending over a certain length of time, based on how much money a person has”.
According to BusinessDictionary, a budget serves as:
(1) plan of action for achieving quantified objectives
This means that a budget helps you to have a set plan of action for what you need to achieve financially. It gives you a clear of idea of how much money you have, and what you can do with it. Having a budget, then, helps you to make the decision of which are the best ways to spend your money.
(2) standard for measuring performance
A budget helps you to track what you have been doing with your money. After using a budget for a while, you will be able to see where most of your money goes. Based on that information, you can make decisions to change your spending habits to get the most out of your money.
(3) device for coping with foreseeable adverse situations
A budget is a great way to plan for the future. You can save using a budget, as a buffer against all kinds of things that can happen in the future. A budget is especially useful for the situations that you can foresee. To be forewarned is to be forearmed. Seeing ahead means planning ahead and making sure that measures are in place for future difficulties.