WHAT IS FINANCIAL LITERACY

(Capital One-How to build a budget)

Simply put, financial literacy means knowing how to handle your money wisely. Many people struggle with financial literacy, even as adults. This is often due to misconceptions or a lack of understanding about what it entails. We're here to help.

Is financial literacy just about knowing how to budget?

No. While budgeting is a key part of financial literacy, it is only one aspect. Financial literacy also involves understanding things like interest rates, credit scores, and investment strategies.

Overall, financial literacy is about empowering yourself with the knowledge and skills to make smart decisions with your money. It is a lifelong journey, but one that is well worth taking.

What is a budget?

A budget is a plan that helps you manage your money. It shows you how much money you have, how much money you need to spend on different things, and how much money you can save or use for other goals. A budget can help you make smart decisions with your money and avoid problems like overspending, debt, or running out of money.

Track your income and expenses

Your income is the money you earn or receive from different sources, like your allowance, gifts, or jobs. Your expenses are the money you spend on different things, like food, clothes, bills, or entertainment. A budget can help you see how much money you have and where it goes every month.

Set and achieve your goals

Your goals are the things you want to do or have with your money, like saving for a bike, a college fund, or a vacation. A budget can help you plan how much money you need and how long it will take to reach your goals. It can also help you adjust your spending habits to save more money for your goals.

Budgeting: How do you start?

Your budget needs to be something that you can look at and refer to frequently. There are multiple ways of building a budget, and you should pick the one you are most comfortable using:

• Pencil and paper: You can write down your income and expenses on a piece of paper, and subtract your expenses from your income to see how much money you have left. You can also divide your expenses into categories, such as needs, wants, and savings, and decide how much to spend on each one.
• Printable sheets on the internet: You can find many websites that offer free or cheap budget sheets that you can print and fill out. You can even download one here. These sheets may have different formats and features, such as charts, graphs, or tips, to help you organize your money and track your progress.
• Spreadsheet: You can use a computer program, such as Excel, Google Sheets, or Numbers, to create a budget spreadsheet. You can enter your income and expenses in different cells, and use formulas and functions to calculate and compare your numbers. You can also customize your spreadsheet with colors, fonts, and styles, and make changes easily.

How do you build a budget?

The 50/30/20 rule divides your money into three categories: needs, wants, and savings.The 50/30/20 rule suggests that you spend 50% of your income on your needs, 30% on your wants, and 20% on your savings. This way, you can balance your money and plan for your future.

Step 1: Know your income

Your income is the money you earn or receive every month. It can come from a job, an allowance, a gift, or a scholarship. Add up all your income sources and write down the total amount. If your only income is your job, write down the amount you get paid each month. This is your starting point for your budget.

Step 2: Calculate your needs budget

Your needs are the things you must have to live and be healthy. Examples include:

• Rent
• Utilities
• Food
• Transportation
• Insurance
• Basic clothing

To find out how much you can spend on your needs, multiply your income by  .For example, if your income is  , your needs budget is   . This means you should try to keep your needs expenses below   every month.

Step 3: Calculate your wants budget

Your wants are the things you like to have but don't really need. Examples include:

• Hobbies
• Entertainment
• Eating out
• Shopping
• Travel

To find out how much you can spend on your wants, multiply your income by  . For example, if your income is   , your wants budget is  . This means you can spend up to   on your wants every month.

Step 4: Calculate your savings budget

Your savings are the money you put aside for your future goals. Examples include:

• Emergency fund
• Retirement account
• College fund
• Any other big purchase you are saving for

To find out how much you should save, multiply your income by  . For example, if your income is  , your savings budget is  . This means you should save about   every month.

Step 5: Write down your actual spending

Now that we have calculated our budget, let's start sorting our actual spending. Grab your latest bank statement, or log into your banking app, and start sorting your actual expenses. For example, if you see that you made a   payment towards your electric bill, write   under the "Needs" budget. If you see a charge for movie tickets, write that amount under "Wants" budget.

Step 6: Compare your expenses to your budget

Subtract your expenses from your budget. This is your budget balance. If your budget balance is zero or positive, that means you are living within your means and have some extra money. If your budget balance is negative, that means you are spending more than you should and may have a budgeting problem.

Step 7: Adjust your budget

If your budget balance is negative in any of the three categories, don't panic! Look at the other categories and see if there is money left in them, and use that extra money to balance or offset the negative balance.If there is no extra money, you need to find ways to reduce your expenses or increase your income.If your budget balance is positive, you can decide how to use your extra money. You can spend it on your wants, save it for your goals, or donate it to a cause.