Good morning! Today I’m teaming up with a few blogs around Shannon from The Heavy Purse to help spread the word about Financial Literacy Month. So what’s financial literacy all about? It’s essentially knowing how money works in the world: how you earn it, manage it, invest it to grow more, and even donate it to help others. More specifically, it’s having the skills and knowledge to make smart decisions with your money.
In simple terms, it’s all about understanding money. I’m not a financial expert, but I learned early on a crucial fact: to spend money, you need to earn it. Seems obvious, right? And to earn money, well, you have to work for it.
If you’ve been following my blog for a while, you know I’m quite the procrastinator and a bit lazy. I don’t mind working for my money, but I’d rather not work more than necessary to get the same amount of money.
Here’s an example. If you earn $10 per hour and want to buy something that costs $100, you’d need to work 10 hours to afford it, assuming we ignore taxes and other deductions. However, with a bit of research and maybe an online coupon, you could get it for $90, meaning you’d only need to work for 9 hours instead.
That’s how I think about finances—trying to spend the least amount of money on something that meets my needs. This doesn’t mean opting for the cheapest item available. I prefer sturdy, reliable products that last. For example, if you buy a $100 cast iron skillet with a lifetime guarantee, you’ll use it for the rest of your life. Over 50 years, that’s $2 per year. But if you buy a $25 skillet that needs replacing every 3 years, after 12 years you’ve already spent $100, or over $8 per year, and you’ll have to replace it again.
Now, let’s go back to something that costs $100. If you buy it on credit and make only the minimum payments, it’ll take you months or even years to pay it off, costing you a lot more in the long run. With high interest rates on credit cards, that $100 item could end up costing you $125 or more, meaning you’d have to work 12.5 hours instead of 10 for the same product. Who wants that?
That’s why I care about financial literacy. You shouldn’t have to work more than necessary to get what you need. Those extra 2.5 hours working just to pay off interest are hours you’ll never get back.
One useful exercise is to calculate your real hourly wage. For example, if you make $10 an hour and work 8 hours a day, but spend 1 hour commuting and another hour de-stressing, you’re actually spending 10 hours to earn $80. This brings your hourly wage down to $8. Plus, factor in costs like commuting, taxes, car wear and tear, daycare, work lunches, and buying work clothes, and your hourly wage could drop even lower.
Suddenly, you’re working 15 hours for a $100 product if your real wage drops to $6.50 an hour.
Being aware of this helps you make better decisions about whether to buy something, wait, or skip it altogether. Understanding where your money comes from and where it goes each month is the first step. Making deliberate choices to maximize your disposable income and save for long-term goals is next. Before you know it, you’ll have more freedom, more time, and more money.
Why do you care about financial literacy?