Becoming Financially Literate Is a ProcessChange can be daunting. Any change, whether it's becoming more fit physically or becoming more fit financially, always seems hard at the start.

Sometimes we’re just looking too far out; we’re trying to get to the finish line before we’ve even started. We may be looking at how much needs to change and anticipating all kinds of obstacles we expect will arise and we know that we won’t know how to handle them. It can seem like a lot. Sometimes it seems like too much, and we don’t change; we prepare to change. 

Preparing to change is neither helpful nor necessary. Often, it is procrastination masked as necessity. The change to become financially literate is a process, a series of small steps taken one after another. And little steps are manageable.

Becoming financially literate means that we become in control of our financial future; that we make informed and conscious financial decisions. It doesn’t mean we always make ideal financial decisions, or even always make very good financial decisions. Sometimes we may choose to do things that aren’t financially optimal, and do so on purpose. The difference is that we will do so knowingly — and rarely. The process can be straightforward.

Commit to Becoming Financially Literate

Commitment is underrated. 

We rarely achieve anything of significance we didn’t first commit to.

From a financial literacy perspective, commitment can simply mean that we are no longer going to accept being a slave to debt or a slave to financial difficulties. We commit to becoming in charge, we commit to becoming the master of our financial destiny. 

Committing means we go forward during those brief times when we question whether it’s worth it. We continue forward even when it seems hard. We don’t question the decision; we stick with the plan.

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Accept Responsibility

No one can make our financial lives ideal, except for us. It is not up to anyone else. No one has the power to make your financial life great or horrible; it is up to each of us individually to determine our financial destiny. 

We all have constraints; we have different skills, talents, and abilities. We have many differences. We have one major commonality. We can each decide to do the best with the hand or conditions we have been dealt. We can choose to follow our commitment and become the best version of our financial self that we can be. No one else can do that for us; financial literacy is our responsibility, no one else’s.

Stop Going Backward

We can move in only one direction at a time. We cannot both go forward and go backward at the same time. We may be doing things that set us back and doing things that propel us forward at the same time, but net-net we are progressing only in one direction. 

Negative financial behaviors prevent meaningful financial growth. We can’t go forward while spending more than we make.

We can’t go forward while racking up credit card debt; we can’t go forward while living beyond our means. 

We can’t go forward while we continue to go backward. We have to stop. The process is simple. Perhaps a little painful. Growth is like that: No pain, no gain.

We need to work some sort of budget. Track what’s coming in and what is going out. If more is going out than coming in, we need to change that. Short term that most likely means less going out. Longer term we may need to make sure we’re earning a reasonable amount, doing what we’re capable of doing. But the quicker fix, the first step, is to reduce expenses so we’re not going backward.

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We can fix only what we know is broken, which is why we need to track. 

It doesn’t need to be complex. Over-analysis leads to paralysis. We don’t need to overthink it; we simply need to know where we are and what we are doing. That means we need to know two things.

We need to know where we are: our net worth. This is the total of all we own less all we owe. It is what we would have if we sold everything and paid all our debts. 

We can do this very simply. 

We can divide a paper into two columns, and list the things we own on one side, the things we owe on the other. Use market value, what we could — realistically — sell it for. 

The owe side should come from statements, either those we get in the mail or balances we look up online. It should be easy to make the owe side very accurate.

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We figure out the two sides and subtract the owes from the owns. This is our net worth. Early on we should track this monthly; later we may move to quarterly, if we want to.

We also need to know what we are doing. This means we need to know how much money comes in and what happens to it. We need that budget, a working budget.

A budget is simply a spending plan. We estimate how much money we will bring in, and how we will spend that. If we don’t know where our money goes, it probably isn’t going where we want it to go. It’s not that smart. We need to tell it what to do. 

If we’re spending more than we make, we should track every cent as we have none to waste.

If we’re comfortably moving forward, we can be a little more lax, but we still need to be very clear on our savings and debt reduction. They are our priorities. 

Here’s where that commitment comes in. If you’re not getting where you want to go, you need to take the time to dig into the details to find out why. Otherwise you can’t fix it. You may need to endure a little pain to get to the gain. But once you’re moving forward, you shouldn’t have to do that again, or at least not often.

Work in the Present

We can only affect change in the now. We need to do today what we can do today. If we do the best we can today, our tomorrow will be the best it can be. If we do the best we can today, we can fix any residual damage of the past and build the foundation for our future.

Everything that happens is because of what we do today. Today is the day, and it is always today. Make it count.

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Take Positive Steps

Take positive steps, not perfect steps. Perfection is a concept; positive is a reality. You should do the best you can; perfection is where we aim, but we can’t actually hit it. Here’s what that looks like in real life.

The person who puts money into their 401(k) will be saving more for their retirement than one who doesn’t do that. You don’t need to know and understand every option. You can work on that, but you will always have more by starting than by waiting, there is no other possible outcome. You win by simply moving forward.

You should definitely think about what you’re doing. You should plan for the future and make the best decisions you can make — but make them. You can’t win from the sideline. You have to be in the game. 

The Bottom Line on Becoming Financially Literate

Many financially successful people attribute their financial success to what they learned by doing — they become financially literate as a result of taking action. 

You can’t become a great cook just by reading cookbooks; you gotta get in the kitchen. 

You can’t think yourself or learn yourself into financial literacy; you have to act. Thought without action accomplishes nothing. Action without thought is dangerous. There’s a balance; we make informed decisions, but we make them. We act and we learn. And we process. We look at what worked well and keep that going. We look at what didn’t work well and we try to improve it.

You can become better financially. Today’s the day.

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