We’ve heard of IQ and Emotional IQ before, but did you know there is also a term called “financial IQ”?
Financial IQ can be broadly defined as a type of intelligence and knowledge about obtaining, saving, and spending money wisely. It may not be the most well-known superpower, but it can really help give your financial prowess the power of flight. And the best part about it is that you don’t have to be superman to have financial IQ – everyone inherently has a little bit of financial intelligence!
Furthermore, it’s always possible to increase your financial IQ! Just because some people seem to naturally have more insight when it comes to making money, that doesn’t mean you can’t, too. Granted, there isn’t a “get rich quick” scheme, but there are plenty of financial tips to save and generate more money over time. For example, investing your current assets to earn more over time is one way to show financial intelligence. As you continue to learn and understand new skills in finances (be it personal, business, or otherwise), your financial IQ grows.
Although this term is fairly new, its usage is gaining popularity. After all, through an increased understanding of financial intelligence, you become more familiar with budgets, profits, interest, and more. Having a high financial IQ can work wonders for your personal finances. These type of skillsets and high financial IQ’s are also what companies search for in employees.
With that being said, let’s look at five ways financial IQ can help you.
1. Save More Money!
Simply put, being smarter with your money means having more money!
Instead of living paycheck to paycheck, increasing your financial IQ teaches you ways to earn money without always having to work for your money. As one personal finance book author Robert T. Kiyosaki wrote, “The poor and the middle-class work for money. The rich don’t work for money. The rich have money work for them.”
In other words, the biggest distinction between those with little and those with higher financial IQ is the ability to invest money. It’s easy to just log in job hours every week and then spend that money on bills and other necessities. But if you start investing, you can eventually build up enough money so that you don’t have to work as much. Your money will grow by itself without you having to do anything!
Investing may be intimidating at first, but confronting that fear is how you break the work cycle. Financial intelligence is all about taking that calculated risk to try to make more money. After all, the potential benefits are boundless!
Just imagine being able to eventually quit your grocery job because you finally have enough funds to move out and get a better paying job. Even with just $1000 in your bank account, you can already make a difference financially.
Having more money can even come from proper budgeting and saving money whenever you can. Especially nowadays, when we have to learn how to manage money during a crisis, developing these skills is a crucial necessity for success.
Don’t Work Hard, Work SMART
Once you can identify and implement healthy financial habits and really track your cash flow, you’ll see your bank account grow! While money isn’t everything, it can certainly open new opportunities.
- Don’t splurge on the “wants” before buying the necessities
- Take calculated financial risks after doing the research
- Keep pursuing financial goals!
- Do not let money run your life
- Take up any financial opportunity you can (business, personal, etc.)
Remember to invest in yourself to learn as much as possible to increase your financial IQ and thus make your money grow. Life will become much more comfortable once you put in the necessary time and effort.
Whether you seek to improve your financial IQ through formal education, experts, or personal advice, you’re already on the right track to rolling in “dough”!
2. Improve Your Quality of Life
Apart from being a productive member of society, there’s a reason people work – to earn enough money to improve their quality of life. But no matter how much money you make, it means nothing if you can’t maintain it. It requires some of that financial IQ. In order to do so, you have to understand the fundamental difference between assets and liabilities.
An asset is anything that puts money into your pocket. It can be something as simple as a skill set that helps you be more qualified on the job or even a rental property that you receive monthly passive income from. On the other hand, a liability is anything that takes OUT money from your pocket. For instance, cars can be considered a liability, as they require money for maintenance, gas, loan payments, and other fees.
While these definitions may seem pretty self-explanatory and easy to distinguish, sometimes it’s not that easy. Many people would consider a house an “asset,” but if you still have a mortgage on the house and have to continually pay for utilities, maintenance, and other fees, it might as well be a liability.
Consequently, the more assets you accumulate, the better off you will be financially! The people with the most financial intelligence are those able to recognize assets from liabilities and can list theirs. They then invest in assets and let go of some liabilities to earn more money than they have to spend.
This becomes a step towards achieving a better quality of life with fewer worries about liabilities and costs. It can also help you feel more comfortable with your own personal finances and the ability to afford the nicer things in life – without breaking the bank.
3. Secure Your Retirement Funds
No matter your current age, you probably want to be able to retire some day. To be able to live comfortably in your old age and not have to worry about finances is one of the great promises of the American Dream. In order to do so, you have to start thinking about investing for retirement even as soon as your 20’s!
Of course, retirement looks different for everyone, but having financial intelligence means being able to plan ahead of time. This way, even if things go awry in your life, you’ll be able to fall back on a retirement fund. And without financial obstacles, you’ll feel at peace knowing that you have some savings for when you are ready for that next step.
One thing to remember is that you don’t have to have the exact amount of money just yet – you just have to be on track. According to Fidelity’s suggestion for retirement, you should have about one year’s salary by the age of 30, six times your salary by age 50 and 10 times your salary by age 67.
However, not many Americans have met this standard. Many are saving, but do not have nearly that amount saved up by the retirement age. And that’s fine! Depending on how you envision your retirement, you may need more or less money.
This standard should merely serve a goal to strive for as an indicator of financial stability and intelligence. The closer you are to that financial goal, the more comfortable you can feel about retirement.
4. Protect Your Financial Portfolio
Investing isn’t necessarily the easiest thing to do. There are so many different ways to invest money such as in real estate, stocks, and/or bonds. And, with the state of the economy constantly changing year to year, there is always a risk associated with investing – as this year has so clearly shown. Events like the COVID-19 pandemic of 2020 demonstrate how the stock market can change at a moment’s notice.
But don’t be frustrated if your stocks drop! It’s not productive to reflect too much on things you cannot control. What is more important is focusing on what you CAN control. Financially intelligent people understand this and thus strive to maintain a good balance with their current investment quotients. Making the right choice today will help influence the future and potentially prevent any significant loss in your financial portfolio.
For example, it is generally understood that when making a smart stock investment, you should:
- Do some preliminary research so you can decide what sort of portfolio you’re looking to create. Remember to STICK with it!
- Keep updated on news, trends, and events that affect companies within the industry
- Use personal goals and information to drive stock buying and selling decisions
Set personal financial goals for yourself and remember that while it is important to stick with your goals, you should not be afraid to modify them as more information comes in. Sometimes, industries (and thus their stocks) can plummet in the wake of a shifting economy. Other times, stocks may rise drastically as the company becomes more successful.
You just have to be mindful, flexible, and willing to modify investments as time goes on to maintain a healthy financial portfolio.
5. Provide Financial Stability
Remember, financial intelligence is really just being open-minded to the realm of financial possibilities. It’s allowing yourself to be prepared for not only financially stable moments, but also for when there are financial obstacles.
Instead of just earning money by just working and saving, why not give yourself some leeway and make investments? It may seem risky sometimes, but when you utilize financial knowledge properly, you are investing in a better future. Furthermore, you create more financial stability for yourself by adding the monetary value of your stocks and bonds as assets in your portfolio.
Having a high financial IQ also means that you are able to recognize financial opportunities even when others can’t see it. This can come in the form of a unique business idea you may have that can be monetized and turned to profit. While it may be intimidating to start a business, it may turn out to be a major source of income for you in the future!
You can also explore options that allow you to earn money from your current assets and maybe even generate passive income. This way you can increase your cash flow with minimal effort! Especially in this digital age, there are so many platforms like Amazon, Twitch, Fiverr, and Upwork where you can make money digitally.
Just be sure to continually explore your options on the path to more financial stability and higher financial IQ.
Final Word On Financial IQ
Achieving a higher financial IQ is not impossible – it just takes time! Reading up on how financial intelligence can help improve your personal finances and what you can do to boost it is only the first step. You have to start implementing healthy financial habits regularly over time in order to really be financially stable.
It’s also important to understand that you sometimes have to take risks in order to get great results. Stock investments are only one of such potentially risky investments, which is why it’s so important to stay updated with current events. A single global event can drastically affect the stock market and push back the optimal time to buy and sell securities.
As a result, making well-informed decisions is the absolute KEY to increasing your financial IQ. You may make a few mistakes along the way, but never let that deter you! Learn from mistakes and continue to make the right financial decisions for your situation.
And, as time goes on, you’ll be able to recognize the financial opportunities with ease so that you can hopefully increase your cash flow and establish more financial stability. The possibilities are truly endless once you enrich yourself with knowledge and continuously build up your financial IQ.