Financial literacy is a topic of interest to more and more people. This is the ability to understand and use effectively various financial skills, including personal financial management, budgets and investments. People without basic financial knowledge could be more likely to accumulate debt, either through poor spending decisions or lack of long-term training.

Personal finance sits on the achievement of personal financial objectives, whether they represent having enough for short-term needs, retirement planning or saving for children’s university education.

Creating a secure financial life can feel like a daunting task that requires the skills of an expert mapping and gps programmer. Some goals will take years – if not decades – to achieve. This is part of the plan! But you also get an immediate payment: much less stress from the moment you dive in to take control of all the money that asks you. According to a 2019 survey, 9 out of 10 adults say nothing makes them happier or more confident than having their finances in order.

Why is it important to have financial knowledge?

When you’re financially literate, you can allocate your income to different goals at once – not just ongoing expenses, but also savings, debt repayments and a fund for the dark days. You can browse the financial market with self-confidence and have the tools to thoroughly research things like loans, credit cards and investment opportunities.

Consumers with financial knowledge can manage money with confidence, which means effectively allocating their earnings to their goals and limiting or attacking their debts. In this respect, there are several fundamental areas of financial literacy: maintaining a budget, paying taxes consciously, planning your pension.

When it comes to managing money properly or dealing with finances, the temptation is to think that we just need to have more information or that the ultimate goal is to get to the objective “right” answer.

What is really happening is that lack of information is rarely what prevents us from enjoying the desired success or achieving our goals. And there are often many ways to reach a goal, not just a single “fair” path.

How do we make good financial decisions?

We face countless decisions on personal finance every day. These range from  banal situations (whether to go out to eat) to those with a greater impact (how much we should spend on a house). However, each of these decisions works together for a lifetime to define our finances.

There are a multitude of factors that influence us in these situations. But we have a few principles or steps to consider when making financial decisions.

• Long-term thinking – This can be the foundation of personal finances based on investments that bring you money in the long run. But also, this thinking helps you realize that 15 lei today on a coffee, with 15 lei tomorrow, gathers, in time.
• Save a penny from each lion – It’s as simple as it is powerful. Start a habit, right now, to save at least 10% of your gross income.
• Be honest with yourself – It’s amazing how we can convince ourselves to make very bad financial decisions. Be brutally honest with yourself and the motivations behind your decisions. If necessary, ask for a second opinion from a friend or family member you know is good at money management.
• Build an emergency fund – This starts with setting a goal for how much protection you want to build. At the very least, it’s smart to have life expenses of at least three months saved in an emergency account; six is even better.
• Realize the difference between wishes and needs – If you are not in a situation where you have an unlimited amount of money, it is in your best interest to be aware of the difference between “needs” and “wishes” so that you can make better spending choices. Needs are things you need to have to survive: food, shelter, healthcare, transportation, a reasonable amount of clothing (many people include savings as a need, whether it’s a fixed amount of 10% of their income or anything they can afford to put away each month). On the other hand, desires are things you would like to have, but are not necessary for survival.
• Set financial goals that motivate you – Here we are talking about those goals that keep you excited and that make you think in detail every decision. Whether it’s about buying a new home or a dream holiday, the set target must inspire you. It should also have a time frame, should be achievable, should be challenging and certainly need to put them on paper.

Personal financial rules can be excellent tools for achieving financial success. However, it is important to consider the bigger picture and build habits that help you make better financial choices, leading to financial health. Without good overall habits, it will be difficult to integrate more detailed ones, such as “never withdraw more than 4% per year to make sure your retirement takes time” or “save 20 times your gross income for a comfortable retirement”.