Managing one’s finances in an ethical manner is not a simple task. One needs to be extremely prudent in order to ensure that they spend their money wisely while also making decisions that will help them achieve all of their goals. Money is not easy to come by, unless you inherited it, and if you do, you probably didn’t earn it.
One’s financial intelligence quotient, also referred to as the financial IQ, is directly proportional to how well they are able to handle their personal financial situation. In this piece, we will discuss some great habits that anyone can cultivate in order to improve their financial IQ; however, before we get into that, it is important that we first understand what the concept entails.
Gaining an understanding of one’s financial IQ
To put it in the simplest terms possible, financial IQ is the capacity to increase one’s wealth through the strategic use of spending, saving, and investing one’s money. Financial IQ, also known as financial intelligence, is a concept that was made popular by the bestselling author Robert Kiyosaki in his extremely popular personal finance book “Rich Dad, Poor Dad.”
Financial IQ, also known as financial intelligence, is all about using information and one’s wisdom to make the right choices in managing money. Rich Dad, Poor Dad was written by Robert Kiyosaki.
Understanding that one needs to make changes to their understanding of how money works is fundamental to the concept of financial IQ. This realization lies at the heart of the concept. It is imperative that we come to terms with the fact that money does not grow on trees and that we are the ones who will be responsible for making the choices that will determine what happens to our money.
The ability to make sound judgments regarding the management of one’s financial resources is the essence of having a high financial IQ, and our ability to do so will only improve as we equip ourselves with sufficient knowledge regarding the processes of earning money and creating a budget.
Why is it important to have a high financial IQ?
Although it might not appear to be so at first, having a high financial IQ can bring a person a great deal of benefit in the long run. Even though everyone has at least some fundamental knowledge about their own finances and how to manage them, not everyone is very successful at ensuring that they are not only great at making money, but also great at saving it and multiplying it. Herein lies the significance of having a high IQ in financial matters.
When it comes to effectively managing one’s finances, there is no one-size-fits-all solution because everyone’s personal financial circumstances are unique. You might have picked up some useful information from members of your family, friends, and/or peer group, but the model that you picked up might not be applicable to your particular financial situation.
Because of this, having a high financial IQ is important so that you can spend your money wisely, save enough, and plan for your retirement, all with the existing corpus you have to start with. Having a high financial IQ will allow you to do all of these things.
Excellent Patterns That Will Raise Your Financial IQ
Improving the way you manage your money is the best way to boost your financial IQ. The following is a list of practices that, if adopted, will help you improve your financial intelligence and pave the way to greater financial success:
Save money as a priority.
Saving money is an excellent habit that high-financial-IQ individuals have, which should come as no surprise to anyone. No matter how much money you bring in each month, you should make it a routine to set some of that money aside in the form of savings each and every month.
It is important to have savings at every stage of your life because not only does this encourage you to make responsible spending decisions, but it also helps you create a fund for when unexpected expenses arise. You won’t need to take out a loan or change your spending habits in order to reach your short-term or long-term financial objectives if you have sufficient funds stashed away in your savings account.
Evaluate your spending
If you have the impression that your money is escaping your control like grains of sand, it is time to investigate the source of all the money that is leaving your possession. A great habit begins with the first step, which is to write down all of your expenditures. This can be done on a daily, weekly, or monthly basis depending on your preference.
This will be helpful in assisting you in better managing your finances by assisting you in keeping track of the expenses that are important and those that you can do without. If you have trouble remembering where you spent money each day, you might find it helpful to keep a personal diary or journal that you can use to keep track of your daily expenses.
Organize your shopping strategy.
There is at least one item that is on the wishlist of each and every one of us, and some of these items are more expensive than we are currently able to purchase. There is no limit to the kinds of extravagant things you might want, such as a brand-new car, jewelry, electronic devices, or even that pricey fragrance.
Even though you might be tempted to make the purchase right away, one of the best indicators of a high financial IQ is the ability to plan purchases and make them only after one has saved up sufficient funds. Make it a routine to avoid making rash purchases, and if there’s something you really want but can’t afford right now, put the money aside so you can get it later without compromising your financial well-being.
Investing money is a great habit to cultivate if you wish to multiply your savings, whether for the purpose of achieving short-term objectives or for the planning of a comfortable retirement in the future. Saving money is a great habit. There is a wide variety of places where money can be invested, including the stock market, real estate, fixed deposits, currency, and many others. When you do decide to invest your money, you should make sure that you do sufficient research on all of the benefits and drawbacks of the market into which you intend to venture so that your returns are both reliable and satisfactory.
Keep track of your current wealth.
It is beneficial to be aware of how much money you bring in, but this alone is not sufficient. Keeping track of only what you earn will not give you an accurate picture of your financial situation, so it is essential that you are aware of your net worth. Your income is not going to tell you if you have debt or if your wealth is growing, so it is not going to give you an accurate picture of your true worth. To calculate your net worth, take the total value of all of your assets and deduct the total amount you owe on any debts you have.
Your liabilities will include all of your debts, such as the bills for your credit cards and loan installments, as well as any other expenses you have incurred. If the number is negative, this indicates that you have debt and that you need to reorganize your finances in order to get out of it. If you monitor your net worth on a consistent basis, you will be able to determine whether or not your liabilities have increased over time, as well as how much money you have been able to save in the bank or keep as assets.
Reduce the amount you spend using your credit card.
If you want to build and improve your credit score, one of the best habits you can get into is using credit cards. However, if you want to boost your financial IQ, it is recommended that you cut down on the number of credit cards you own and use. This will help you better manage your money.
When a person has an excessive number of credit cards, they frequently have a tendency to lose track of all of the purchases that they have made. It’s possible that the figure will throw off your entire budget when the bill arrives at the end of the cycle. If you continue with this pattern of behavior, it will, in the long run, have an impact on the security of your finances.
Take out a loan only when there is absolutely no other option.
Because loans are so readily available today, it is now much simpler to buy even expensive luxury items. This is due to the rise in the general standard of living. When it comes to financing the things or services of your dreams, an instant purchase on EMIs may seem like a dream come true, but in the long run, it severely affects your financial health.
You should only consider getting a loan if it is absolutely necessary, and if you believe that your income can adequately handle the burden of making the required monthly payments on the loan. Download the PaySense app if you’re looking for quick and easy small personal loans with minimal documentation and processing time, as this is exactly what you’ll find with these loans. PaySense is able to provide loans of up to 5 lakhs Indian rupees with easy and affordable EMIs and a variety of repayment terms.
Read some books about managing your money.
You can learn much more from reading a good book than you can from learning things the hard way through personal experience. There are many excellent books written by excellent authors, such as “Rich Dad, Poor Dad” by Robert Kiyosaki, “Get a Financial Life” by Beth Kobliner, “The Automatic Millionaire” by David Bach, and “The Total Money Makeover” by Dave Ramsey, to name just a few of the available options.
Not only will reading these books improve your financial IQ, but they will also clear up a lot of questions that people typically have about their own personal finances. Spend some of your free time reading personal finance and budgeting-related articles, blogs, and magazines. Doing so will arm you with the knowledge you need to handle your financial situation in a responsible and effective manner on a consistent basis.
Consult with a financial advisor or tax planner for assistance.
It is highly recommended that you consult with a financial advisor or a tax planner if you are still confused about the best way to get your financial situation under control. They will be able to advise you on how to better manage your finances by utilizing their extensive domain expertise in addition to their extensive technical know-how in the field of finance in general.
If you seek the assistance of a tax planner, they will also be able to assist you in calculating the correct amount of tax that you are required to pay, determining where you are eligible to claim rebates, and saving money on taxes without violating the law.
Investing some time in increasing one’s knowledge of personal finance is the single most effective strategy for developing responsible behaviors that will lead to a high financial intelligence. Every single person, regardless of their age, should make it a priority to educate themselves on the most recent developments in the field of finance in order to maximize the growth of their personal wealth.
You do not need to be a financial whiz in order to boost your financial IQ, but educating yourself about personal finance through a variety of reliable sources and learning new skills to better budget your money can go a long way toward accomplishing this goal.