Many people don’t feel the need to develop their financial literacy or get involved with their own money, property and investment issues. This could be because they don’t have much money or they have a family member, accountant or financial adviser who saves them the headache of making financial decisions.
Despite the convenience of such a set-up, it can turn to be very risky if you suddenly have to handle your money issues. Think for example of a scenario where a divorce or death brings — in addition to all the emotional stress — new money issues that must be handled by a totally inexperienced person who entrusted a spouse to handle these issues for years. Stress combined with inexperienced decisions can lead to a financial collapse.
Here are some good points to develop your financial literacy even when you don’t have to handle a lot of money issues immediately.
Know what and when to invest
Many people think investments are exclusive to rich folks. Therefore they may park their money in savings accounts that don’t bring the best returns. When you develop you knowledge of the stock market, real estate market, and other investment options, you will be able to decide when it is time to channel some of your savings into a higher-return investment. Also your own knowledge should shield you from taking more risk than you can tolerate.
Just like it is not wise to wait too long to invest, rushing into a big project with your little savings may not be disastrous. Your ability to understand your financial needs will help you know how much money exactly you can safely invest, what types of investments are right for you, and when you can jump into an investment without jeopardising your financial stability.
Informed trust
If you put your trust in a family member or a professional to manage your money and investment, you need to be sure not only that the person is trustworthy, but that they are also making the best decisions on your behalf. Even if you don’t develop so much knowledge, your critical eye can spot things that are out of order or simply fishy.
Even when there are no bad intentions, being involved in the decision-making process can you understand the rationale behind some decisions, which over time develop your sense of sound financial planning and help you understand why certain decisions are being made. Remember money management isn’t an easy skill to develop, so you will need as much information as you can gather before you can confidently make your own decisions, especially on large investments or purchases.
Pick up and continue
In case of an emergency or a change of plans, you should be able to stay afloat if you have past knowledge and a solid understanding of where and why you money is. This financial literacy should reduce your stress about your financial situation. It also should guide you when you are making critical decisions after a personal crisis such as job loss, divorce or a family member’s death.
In short, although being dependent on someone else to deal with money issues is convenient, no one can afford being unable to handle their own financial matters. Sooner or later you will be in a situation where you need to make a critical money decision independent of others’ preferences and advice. And when this moment comes, you must be ready to make this decision confidently.
Until then, you don’t have to fire your financial adviser or ask a family member to take their hands off your money. All you need is to get involved. Know how the decisions are made, ask questions, seek clarifications and don’t shy away from making suggestions that seem reasonable to you. Although this entire exercise may seem unnecessary, the knowledge that you’ll acquire may proove invaluable when you need it.
The writer, a former Gulf News Business Features Editor, is a Seattle-based editor.
Get a handle on your money
Learn more about financial planning
Be part in the decision-making process
Share your concerns and ask questions
Be prepared to handle your own money
— R.O.
