Financial IQ does not necessarily mean you’ll come from rags and retire with riches as a millionaire. Financial IQ has less to do with accumulating large sums of money than it has to do with handling the money intelligently. The better you are with money, the higher your financial IQ. Unfortunately, too many of us suffer from impulse buying and shambolic budgets. Luckily, this blog can help you raise your financial IQ by several points and achieve your financial goals.
How To Increase Your Financial IQ
There is nothing wrong with having ambitious financial goals. Maybe you want to retire comfortably at 45. Maybe you want to be a major player in the stock market and earn big commissions. Maybe you just want to pay off your entire mortgage as soon as possible. Or maybe you want to be stable enough to be able to afford to send a kid or two to college.
Financial goals are many and varied, depending on what drives a person. However, too few of us have enough focus to actually work towards them. If I have to choose from the internet providers in my area, I need to approach it carefully. Otherwise, I’d be stuck in a service agreement I don’t want when all I wanted was fast internet. Similarly, you need to plan out your path to your financial goals, otherwise, you end up stuck in debt or struggling to make ends meet when you thought you’d be successful by 35.
The secret to achieving your financial ambitions is to incorporate a small set of everyday habits that will build your financial IQ. Some of these habits include the following:
- Strict Purchase Plans
- Read More
- Invest Smartly
- Cash Only, No Credit
- Keep Business and Personal Funds Separate
Let’s take a closer look at these tips below and see what makes them so important to raising your financial IQ and handling money better.
Strict Purchase Plans
You need to plan out every purchase you intend to make during the course of a month and stick to that plan. Impulsive buying only burns a very inconvenient hole in your budget. Impulsive buying also leads to you losing track of how much you have left in your budget for the period. Planning every purchase during a period, whether for business or for personal use.
For example, if your business needs a new piece of equipment, put down all the details on paper and work it out. Look at how much the equipment will cost you, how much profit it will earn you, and how much will it leave in your budget to spend. Putting things down on paper has two major advantages. It lets you clearly see if you’re making the right decision in financial terms. It also allows you to stay on top of your budget and control your finances tightly.
One common habit among people who are financially literate is that they read a lot. Not the cheap, detective novel paperbacks we are used to reading but more actionable and realistic stuff. The power of the internet allows anyone to stay informed on a particular topic. Instead of spending time on fantasy football forums, why don’t you spend your internet time productively?
Make a habit of reading one blog or article every day that talks about money management. Start following the blogs and magazines that offer the most valuable information. If you have to subscribe to an e-magazine or a print magazine, don’t hesitate to do so. This is just an investment in your financial IQ.
Remember, you may not necessarily find material that directly applies to your circumstances. It is up to you to learn from the knowledge you gain and figure out what works best for you. If reading is not your forte, try following entrepreneur-run YouTube channels and social media pages.
Running your own business often requires you to take up the role of investor from time to time. Most entrepreneurs invest their own money into their businesses because they are the only ones with enough belief in their ideas to stake something on it.
So if you’re going to act like an investor, you have to think like one too. Every investor knows that the best way to minimize risk and maximize profits is by diversifying your investment portfolio. There are two advantages to this. An investment income from, say, trading stocks online can protect you if your business tanks. At the same time, it offers an additional revenue stream that you can invest back into your business. Remember to diversify your investments across different industries.
Cash Only, No Credit
Regardless of what you may believe, you don’t need your credit card to survive. Sure, it is convenient to buy things on your credit card and pay for them later. But credit cards also make it easier for you to spend money and therefore will upset your budget.
Using a credit card is as simple as swiping it at a point of sale. This is easy and almost impersonal. I pay for my Optimum plans using my credit card all the time without batting an eye. But when you actually carry your hard-earned cash, you’ll feel the weight of it when you hand it over after a purchase. The physical action of handing over cash can itself be a strong deterrent against needless spending. The more money you save on needless expenses, the more you have to put back into your business.
Keep Business and Personal Funds Separate
The final tip on our list is to keep your business funds and your personal funds in separate bank accounts. Of course, as a business owner, you may feel the business funds are yours too because you invested them. While you are right, it is more prudent to treat the money as belonging to the business rather than yourself.
Keeping business and personal funds together is a big mistake. You lose sight of the difference between business and personal transactions. Financial mistakes get lost in the crowd, preventing you from raising your financial IQ beyond a certain point. And the tax aspect will obviously be a nightmare in its own right.