There has been a lot of hue and cry about the current state of the real estate business, and most investors are licking their wounds, regretting their losses. One thing can be said about every investment: there is always an element of risk, so it may not be entirely plausible to blame everything on financial inefficiency on the path of the investors.
All this is well and good, however, so long as the average investor or businessman is financially literate. You’ll be alarmed, though, to find that a lot of people are almost 100% financially illiterate. Some speculators say that financial illiteracy is the reason the USA is losing billions of dollars every year.
People with low financial IQ usually fall prey to credit card debts and the soul-sucking high interest rates that come with these cards. According to Halifax, Unsecured loans are very helpful indeed, there is a direct relationship between the financial IQ of a country and its debt load. Consumers and buyers who do not have much going for them by way of financial IQ tend to make a lot of financial mistakes informed by faulty financial reasoning and aptitude.
As more countries battle with crippling economic reforms and meltdowns, it becomes highly important for the average citizen to have better financial judgment. The difference between a comfortable retirement and a poor pension life is just that – financial intelligence.
Basically, if you are going to get by successfully with your personal and business finance, you need to have a good financial IQ. Here are some of the indicators of a healthy financial IQ.
1. A plan of action
It has been observed in repeat occurrences that the more financial adept people of this world have a financial plan, a budget and financial targets they work with. These people have amazing financial goals and targets that they strive to achieve everyday.
2. A tenth of what you earn is yours to keep
This is a quote from the book, The Richest Man in Babylon and it is a very brilliant description of financial intelligence. You should strive to keep at least 10% of your earnings and set it aside for investments or (if investment is really not your thing) you may choose to put it in compound interest for its long-run benefit.
3. Draw the line on liabilities
If you are pretty serious about your finances, then you should know not to invest too much in liabilities. Wise investors usually cut down on their expenditure on liabilities and where they absolutely have to, they ensure that they spend the least possible amount for the best quality. Liabilities are usually the weakest link in the building of a successful financial base.
4. Money Goals
For complete financial aptitude, you will need to have short and long term money goals. A financially intelligent person can’t afford the luxury of spending carelessly. Every dime needs to contribute to the bigger picture: the long and short term financial implication has to be considered. The long- and short-term money goals are what keep you motivated and focused financially.
5. Professional Advice
You should always seek professional advice when you have to. A lot of people do not, and what they end up doing is akin to a ‘penny wise, pound foolish’ decision. If you have an issue financially, know when to admit that you may in fact not know it all. Getting professional assistance may just be the key to revoking a financial disaster or making a windfall.
6. Interaction with reputable money managers
There is nothing as good as association. Associating with the right kind of people – people with sound money management techniques and attitudes – is good for your financial intelligence. You can learn their best money-saving tips and pick up on habits that make you better at managing your personal and business finance.
7. Learning never ends
You can never know enough, and you can never be too perfect in dealing with your cash. There is just so much about the property market, the stock market and the business world. Keep reading, listening and interacting. If you want to be a good money manager with an enviable financial IQ, this is how to do it. Never stop learning.
8. Savings should be kept safe
You shouldn’t look at your savings as some sort of emergency cash for when you’ve spent all your money. Your savings should be allowed to mature. If anything, you should be adding to it, not regularly removing from it. Removing from your savings shows financial immaturity and a low financial quotient.
Your financial life is in your hands. As more businesses fail world-wide, it becomes imperative that people adopt financially intelligent decisions in their basic life. Personal finance is one area where people exhibit poor financial judgment, and it will never change unless you decide to actively pursue financial intelligence.