Core Competencies of Financial Literacy: Learn about the building blocks to manage and grow your money

Financial literacy is a skill that every individual must have as it helps in maintaining your proper relationship with the money. It also ensures that you make effective and informed decisions with all your financial resources.

Interestingly, financial literacy is achieved through financial education and today we will talk about the five core competencies that are needed to manage and increase your money in the financial decisions that you take every day across your life. The five core competencies are Earning, Spending, Saving & Investing, Borrowing and Protecting. These can act as the five building blocks of your financial decisions.

Earning: Earning refers to the resources through which you bring money to your home and it includes a job, self-employment, business or return on various investments. In the case of India, most of the individual earns money via employment in form of a paycheck. On average, the employee pays between 20-25% of their gross income in taxes and deductions before receiving their take-home salary or the net income. So, it is necessary to understand gross versus net in a paycheck. So, every individual should understand the concept of earning to determine their future plans.

Saving and Investing: Individuals should first learn the aspect of saving from whatsoever he/she earns and try to save at least 25-30% (if possible) and then look after other expenditures like rent, food and daily expenses among others. Now, the person should know the art of investment so that he/she can make an informed decision to invest a part of his savings to make sure that you are satisfied with your return on this investment. Start Saving Early and Pay Yourself first, this will help you to understand the fact that the saved money grows over time, which may lead you to explore long-term investments for retirement planning.

Spending: Spending is the most important concept and one must have a sound understanding of the same as the style of spending is a reflection of a person's lifestyle, values and financial behaviour. Understanding the difference between WANT and NEED is a basic concept of controlling spending and budgeting is the most powerful tool that a person can adopt to control spending. A control on spending will allow you to save more and invest more for the future.

Borrowing: Borrowing means a way to be under debt. Most individuals have to borrow in form of a vehicle loan, house loan, student loan and personal loan among other forms of loans in India, to finance their needs. Make sure that the borrowed money or the debt you take is used in the creation of an asset. At the same time, also make a financial plan for repayment of the debt so that your sail out at ease of the pressure that the loan can through on you if things are not planned well.

Protecting: For the financial protection of the family, you should know the art of protecting your financial resources. For this purpose, you can opt for insurance, retirement plans and another mode of investments where you get good returns and stay protected at all levels in your life.

These are the five core competencies that a person must know to lead a life of financial security and freedom.