10 essential financial skills everyone should master

10 essential financial skills everyone should master
Photo by Tim Mossholder / Unsplash

Navigating the complex world of personal finance can seem daunting, but it's a journey well worth embarking on. Achieving financial freedom isn't just about accumulating wealth; it's about gaining the knowledge and skills to make informed decisions, ensuring a secure and prosperous future.

No matter if you are just starting your journey, or you're a seasoned investor, there is always something new worth learning. What should you do other than reading Wealthy Parrot? 😄 The OECD, that stands for Organization for Economic Co-operation and Development, offers their perspective.

Source: OECD

Ready to unlock the secrets to financial mastery? Let’s go!

Skill 1: master the art of budgeting and expense tracking

Budgeting helps you understand where your money goes, track expenses, and make conscious decisions about your spending. This is probably the bedrock of personal finance. It might sound boring but it's really about getting your closer to financial independence. One interesting technique comes from Japan, called Kakeibo. You can read more here.

Tip: utilize budgeting apps or create a simple spreadsheet to track your income and expenses. Remember, every penny counts!

Skill 2: debt - the good, the bad, and the manageable

Debt can be a double-edged sword because not all debt is created equal. "Good" debt, like student loans or a mortgage, can be an investment in your future. "Bad" debt, incurred on high-interest credit cards or impulsive purchases, can quickly spiral out of control. There are different techniques to repay debt, but a good approach is to prioritize high-interest debts first, and explore options like debt consolidation to lower interest rates.

Skill 3: your financial safety net: insurance

Insurance isn't the most glamorous topic, but it's your financial knight in shining armor. It’s about making sure that when life throws a curveball, you’re ready to catch it without breaking the bank. Whether it's health, home, or auto insurance, getting the right coverage means you're protecting your peace of mind along with your wallet.

Tip: do your research, compare quotes from different providers, and understand the terms and exclusions of your insurance policy.

Skill 4: the future is bright: saving and investing

Saving secures your future, while investing grows that future. The concept of compound interest is your best friend here—Einstein wasn’t kidding when he marveled at its power. Whether it's stocks, bonds, or ETFs, understanding the basics of investing means you’re building your financial castle, one brick at a time.

Want to learn more about easy saving strategies? Look no further.

Skill 5: retirement - the long, relaxing vacation

Think of retirement as the longest vacation of your life. How do you want to spend it? Starting your retirement planning early, understanding options like 401(k)s and IRAs, and harnessing the power of compound interest can turn this long vacation into a dream holiday.

Skill 6: tax savvy - keep more of what you earn

Taxes are a significant part of your financial landscape. Becoming tax-savvy—knowing how to navigate deductions, credits, and tax-advantaged accounts—can save you a fortune. This isn't about avoiding taxes legally but rather understand opportunities withing the legal framework. Remember, it’s not just about how much you make but how much you manage to keep.

Skill 7: decoding financial products and services

The financial market is a buffet offering an array of products and services. Many banks might not give you access to the "best" products and try to sway you into what will give them most profit. Knowing how to pick what suits your financial appetite best is key. From savings accounts to mortgages, understanding what’s on offer allows you to make choices that align with your financial goals.

Skill 8: big purchases, smart choices

Whether it's buying a house or a car, big purchases are significant milestones. Making informed decisions—understanding financing options, interest rates, and the long-term impact on your finances—ensures these milestones are celebrations, not setbacks. A big purchase could also be your trip to Disneyland though, as seasonal spending is normally higher than over the rest of the year. But if you know it, it's easier to avoid it.

Tip: do your due diligence and understand associated costs, factor in long-term expenses like maintenance, and seek professional advice if needed.

Skill 9: seek wisdom - navigating advice and information

In today's digital age, financial information is readily available. But sometimes it can be overwhelming. Evaluating financial advice, understanding its source, and filter out the noise can make the difference between thriving and merely surviving financially.

Skill 10: never stop learning

The financial landscape is ever-evolving. Staying informed, adapting to new laws and trends, and continuously educating yourself on financial matters ensures your financial strategy remains robust and responsive. To skim through one technique is to use some AI tool like ChatGPT. Be aware though, it's a good starting point but you still need to ask the right questions and it might not fit your specific needs.

The path to financial enlightenment

Mastering these ten financial skills opens the door to not just financial literacy but financial enlightenment. It’s about taking control, making informed decisions, and setting yourself on a path to financial freedom. The OECD Financial Competence Framework offers a solid foundation, but remember, the journey is yours to take. Engage with educational resources, seek out professional advice when needed, and apply these skills diligently. Your financial future isn’t just a dream—it’s a destination.