As mortgage brokers we can easily identify the level of financial literacy a home loan applicant has, and we often notice blind spots regarding the way people manage their money and their understanding of their finances.

We’ve compiled a checklist of points to consider when looking at grading someone’s level of financial literacy – how well do you score?

Budgeting and Cash Flow Management

Understanding the relationship between your income and your expenses is one of the most rudimentary elements of financial literacy. Actively working within the confines of a budget, living within your means and having an emergency fund with three-to-six-month worth of living expenses are all necessary to ensure a buffer is in place should an unexpected change occurs.

Saving and Investing

Even if in small amounts, ensuring you save money regularly will guarantee wealth generation over time. Understanding the concept of compound interest, having knowledge around the different investment options available as well as being familiar with the notion of risk and return will give you the building blocks to nurture your investment portfolio.

Debt Management

Knowing how credit works and being across the credit facilities that you own including knowing your relevant interest rates, loan terms and fee structures is important. Furthermore, having a healthy respect for credit and not being cavalier in taking on more debt just because you qualify for a facility is crucial.

Tax Time Management

Having a basic understanding of how the tax system works and being across what deductions you may be entitled to claim is key. It is also paramount to keep the correct records to maximise your claims. Most importantly ensure you engage a reputable accountant and get all your tax advice from them.

Retirement Planning

It’s never too early to have strategies in place to set you up for a comfortable retirement. Part of that also means seeking appropriate advice from a Financial Planner who can effectively tailor a plan that will be suitable for your unique circumstance and goals.

Insurance

Knowing the types of insurances you need and choosing the right coverage is key. Your Financial Planner will assist in guiding you through important policies such as Life Insurance and Income Protection.

Financial Goal Setting

It is imperative to have clear short- and long-term goals to achieve financial security. These goals should also be SMART – Specific, Measurable, Achievable, Relevant and Time-Bound.

Understanding Financial Products

Knowing the terms and conditions of not only the loan products you have but also your transactional accounts and investment products is important. Understanding that you may also outgrow products you have is key as when your circumstances change over time, often so do the types of financial products that are suitable for you.

Protection Against Scams

Being savvy to the kinds of fraudulent schemes that operate particularly in the digital world is a necessity. Having the ability to identify potential scams is important as your finances may be compromised very quickly if you fall prey to one.

Financial Discipline

Its important to cultivate behaviours of delayed gratification and prioritize long term gain over short term desires. Tracking your progress and taking the time to audit your financial strategies and products will reap rewards. Part of that means educating yourself via reputable industry resources and professionals and being mindful to set yourself up for success not failure will also be worthwhile.

So, how did you fare? Are their areas you could improve on? The good thing is that it is never too late to start managing your money better and arming yourself with the right tools for success.

The Blackburne Mortgage Broking team are a great starting point but also, we are aligned with other finance professionals such as accountants and financial planners that we can put you in touch with to fast track your wealth creation goals.