Money, money, money! We’ve known since a young age that money is important. Even as toddlers learning about colors and numbers, we were cognizant enough to understand that money equates to power. But since personal finance is not always adequately taught in schools, the knowledge gap can affect your financial IQ – which means it’s up to you to increase it one article at a time.
Young adults especially have had difficulties with personal finances. For instance, studies have shown that more than 20% of renters aged 18-24 overspend their income by $100 per month. Furthermore, the average student debt has increased from $18,550 in 2004 to $28,950 in 2014 – a whopping 56% increase!
While there are always going to be external and uncontrollable factors, taking control of your finances now will significantly help you become more financially stable. For example, buying a home, opening a new bank account, and investing in stocks may all seem intimidating at first, but with the right resources, they become much more manageable.
All you have to do is follow our seven easy tips to help increase your financial intelligence!
What is Financial Intelligence?
As any intro economics class will tell you, there is always an opportunity cost associated with financial choices. Financial intelligence is all about making the right financial choice for your situation.
Say you’re looking to buy milk from the grocery store. You can either choose the $2 store brand milk, or you can choose the $6 Organic Soy Milk. The store brand milk is much cheaper, but you may be sacrificing quality for cost. But why does $4 difference matter, you wonder? After all, $4 only gets you a single grande latte.
But, if you apply the same concept to more expensive items like a smaller $200,000 house that you can comfortably afford versus a modern $600,000 house that would take longer to pay off, the $400,000 difference seems a lot more significant now
When you don’t take the time to think about the financial choices, you run the risk of becoming financially unstable and always running behind on bills. In the U.S. alone, 78% of workers are already living paycheck to paycheck. Understanding financial literacy – the basic financial fundamentals – is only the first step to meeting all your monetary goals.
Chances are, you already have at least an idea of how to manage finances. The next step is to increase your financial intelligence so you improve on the ability to obtain and manage wealth properly.
With a higher financial intelligence IQ, you can:
- Increase your earning potential
- Improve quality of life and finances
- Secure your retirement funds
- Protect your financial portfolio
- Provide financial stability
Of course, like all good things, it takes time and effort to really increase your financial IQ. But once you invest in yourself, you start investing in a better future.
Step 1: Read Up On Personal Finance Resources
In today’s world, we have all the tools at our fingertips needed to succeed. You can visit the bookstore, local library, or even look it up on your electronic device. There are plenty of financial resources out there if you just look!
A couple of excellent books to start with include Robert Kiyosaki’s “Rich Dad, Poor Dad” and Dave Ramsey’s “The Total Money Makeover.” Just think about what financial subject you’re looking to improve upon and start your journey! Whether you’re looking to learn more about budgeting, investing, or emergency savings funds, there are books and articles out there for you. (Some of them are on our site!)
Or, if videos are more your thing, YouTube channels like “The Financial Diet” are quite helpful. You can also look into material that the government provides on a federal, state, and/or local level about spending, saving, and investing. They often have very helpful FAQ’s, documents, and other educational resources to help increase your financial intelligence.
Be sure to keep an open mind, though! Everyone’s financial situation is different so certain tips may or may not apply. The main goal in exploring your resources is to LEARN and see what may work.
If you’re just starting your personal finance journey, it may be good to start with more “layman” and “baby step” approaches before progressing to more complicated topics like stock investments. It does not mean your financial quotient isn’t capable enough – just that it takes time to absorb and understand all of the information.
Step 2: Assess Your Current Financial Situation
Now, let’s assess where you currently stand!
Start by checking your bank statements to see how much you have and how much you owe. It may be intimidating to really face the bare facts at first, but don’t feel discouraged! You’re already reading about how to become more financially intelligent and increase that quotient. Just remember that you can only go up from here!
Make sure to also create a list of your assets and their worth to help determine your current net worth. Net worth is the difference from total income and worth of personal assets subtracted by your liabilities.
By tracking this value, you’ll be able to understand more how your income affects your net worth and where the money is going. You’ll be able to see how your liabilities change over time and if your net worth has been increasing.
If it’s not, it means there is definitely room for improvement and increasing your financial IQ!
Step 3: Track Your Spending
Knowing is only half the battle – your still have to track your money!
It may be a bit tedious at first, but tracking spending really helps in the long run. Find out what sort of purchases you’re making whether it’s on food, entertainment, or something else. If one category seems to be overwhelmingly too much, try to find ways to decrease your spending.
Perhaps you’re spending $200/month on eating out, for example. If you spend a bit more on groceries and less on eating out, you could probably save more money!
Recognizing such personal financial habits and then taking steps to adjust to more healthy habits is a sure sign of increasing financial IQ.
Budgeting is another great way to track your spending! By allocating a specific amount to each spending category and then setting aside some money for other things, you can really maintain financial stability.
It’s always tempting to buy nice things when you have the money, but always remember that opportunity cost – splurging frequently now may prevent you from buying a house anytime soon.
Thus, you should constantly remind yourself of your financial goals to prevent falling off the path to healthy finances.
Step 4: Enlist Financial Help to Boost Your Intelligence
So far, financial intelligence has been mostly learning on our own through reading financial resources and starting personal budgeting. However, it may be hard in the beginning – especially if this is your first time.
Therefore, if you’re feeling overwhelmed, consider enrolling in finance classes or seminars that can help you get a better understanding of the financial concepts. Having a financial professor guide you through the steps can really jump-start your personal finance journey. Even working with your peers can help by reminding you that you’re not alone in this journey to healthier finances.
If schooling is not currently an option, you may want to seek out a professional financial advisor. This is especially important if your financial situation gets more complex due to matters such as investments, which may require advice for situations you may be unfamiliar with. Even tax planners or accountants should be able to help considering their financial backgrounds and years of experience with many different situations.
Remember – intelligence quotients don’t mean you have to know everything. Seeking out help when needed is more than acceptable as long as you are willing to learn!
Step 5: Invest in Yourself
You don’t have to invest solely in personal finance courses in order to increase your financial IQ. By investing in yourself and your skills, you can significantly improve your financial prospects! The job market nowadays is very competitive, so having a few extra skills and certifications can really help you stand out in the crowd.
Sure, enrolling in a certification course may cost some money, but it usually helps in the long-term. It may even lead to higher pay and better job prospects.
Look into what certifications may help in your career field of choice and then research which program would work best for you.
Step 6: Networking to Increase Financial IQ
Networking is definitely a big part of increasing financial literacy and improving financial intelligence. It helps a lot to grow and maintain a network of people who are financially capable and can pool various financial advice.
A good network would contain family, friends, and even other contacts met through work events or other means. The crazy thing is that you sometimes never know what relation could result in a new career opportunity or even financial assistance in times of need.
By keeping your options open and networking far and wide, you open yourself to numerous potential opportunities. If you’re in need of credit advice, chances are, someone in your network would be able to provide their insight and experience to helping improve your own credit score. Just asking a few simple questions can go a long way in your personal financing journey!
Step 7: Commit to Healthy Financial Habits!
It’s not always going to be easy!
Embarking on the path to financial stability is a huge commitment and will take longer to implement than just a day. You have to constantly remind yourself to not indulge in expensive fads and the fact that you would rather save that money for your long-term financial goals.
Using all your available resources and following these steps have to be implemented in your daily routine. It’s very easy to think that when we have enough money, that we can indulge and buy everything we want, but life isn’t always that smooth. Life may throw some curve-balls like sudden unemployment or a car accident.
Instead of focusing on what we cannot control, focus on what you CAN control. It takes much more financial IQ to take your current finances and invest in a safe manner for when events take a turn for the worse.
Furthermore, financial stability is a marathon – not a sprint!
Taking the time to focus on the value of time with money is a huge (but healthy!) mentality shift. If it helps, keep a financial report of your cash-flow so that you don’t accidentally overspend. This will help you see more clearly your current financial situation and what areas you can improve upon.
Lastly, shake off any doubts or mixed feelings you might have about finances! As long as you really commit to implementing healthy financial habits, your financial IQ will increase drastically.
A Final Word on Financial Intelligence
Everything seems daunting at first!
You may not have been taught financial literacy in school, but it doesn’t mean that you can’t still learn! After all, it doesn’t take much to feel more at peace financially – just some time and effort. Once you start implementing healthy financial habits regularly, you’ll be able to really tackle all your financial goals.
In addition to the seven steps to increasing financial IQ, here are a few “do’s” and “don’t’s” to keep in mind as you embark on your personal finance journey.
- Use ALL available financial resources
- Continue educating yourself through classes, professional financial advisers, and/or your network
- Start budgeting and keeping track of your spending
- Panic! You have to start somewhere – and over time, your finances will stabilize
- Go through it alone. There are plenty of people willing to help you!
- Limit your opportunities. Try exploring different skills and certifications to boost your job opportunities
It may take a while for your personal finances to reach a level you’re comfortable with, but if you’ve read this far, you’re already taking a step in the right direction! Soon enough, you’ll be able to boast that your financial intelligence is high enough that you have reached financial stability.
Then, you can reach your other financial goals like buying a house perhaps or affording college tuition. Who knows, you may even be able to teach your newfound financial wisdom to other friends, family members or your kids!
Knowledge goes a long way into paving a better and more financially sound future for yourself. Just take these financial habits and implement them one day at a time.