Do you remember the time when you eagerly rushed to your money-saving jar shaped like a building or cartoon character to save your money? It was your first lesson in the art of financial management.
As you grow older and step out from under your parents' guidance to lead an independent life, the significance of mastering the skills of financial management and to what extent you understand it becomes increasingly important.
Just as living in today's world can be challenging without basic literacy, encountering financial challenges can be equally troublesome without financial literacy.
That is why we, Study Diary, will be delving into discussions on financial knowledge and personal monetary management with the aim of equipping you with a better understanding of the money you daily use, and making the right financial decisions.
Translation by @Hilton
Graphics by @Glory
Basic Financial Knowledge 1
1. Currency
Currency can be roughly divided into
Cash
Digital Currency (Cryptocurrency, etc.)
Before the advent of cash, people used the barter system, in which they exchanged things for something. Then the commodity system came into use where something valuable became the medium for the exchange; for instance - just as we use cigarettes as money in jail. In ancient times, the commodity money was cattle, salt, gold, etc.
Dating back over two millennia, the practice of imprinting the value on metal coins found its origins in Lydia (Turkey today). The inception of paper currency was started during the Tang dynasty (618 - 907). However, the systematic production of notes, just like today's modern currency, started during the Shang dynasty (960 - 1279). In Europe, Sweden stands out as the pioneer, being the first country to utilize banknotes in the year 1660.
2. Loans
Basically, loans have two types which are
Secured Loan (E.g., Mortgage Loan)
Unsecured Loan (E.g., Credit Card, Student Loan)
If you are interested in gaining a comprehensive understanding of the loan system, including things you should know before borrowing money and effective loan management strategies, we recommend watching this informative video. https://youtu.be/n31FLLeRgXw?si=XoxsSXNATZ61BjTg
3. Interest
The reason you receive interest when you save money in your bank account is that you permit the bank to utilize your money for a certain period.
Various types of deposit and saving accounts such as current deposit accounts and fixed deposit accounts, can also be categorized as interest-bearing accounts and non-interest-bearing accounts. However, the interest rate may vary depending on the specific type of account.
If you deposit your money in the current account which is widely used by business people, you will not get any interest. This type of account is not for saving money, but for transferring money.
4. Credit Card / Debit Card
You can make payments with both of these cards, but the difference is that a credit card is a loan from a bank and must be repaid the borrowed amount. There is a maximum limit you can borrow using a credit card. However, you can be taken to court unless you pay it back. On the other hand, a digital card simply uses the money in your own bank account.
Basic Financial Knowledge 2
5. Bank Balance
It means the amount of money present in your bank account.
6. Budgeting
Budgeting is systematic planning which involves recording your income and outcome. It helps you to ensure that you do not exceed your financial means and to enable profound management of your income by tracking how much you allocate your salary and what you spend it on.
7. Direct Deposit
If deposit means placing money in a bank account, then what is direct deposit? Direct deposit means the direct transfer of the money to a recipient’s bank account, eliminating the need for a physical stack of cash. Some employers use this method to pay their employees.
8. Bankruptcy
You may have read the news last year that the world-famous ‘Revlon’ cosmetics company was about to go bankrupt. Bankruptcy is the legal acknowledgment in court that a person or an entity is no longer capable of repaying their debts, often in a humiliating situation. In such circumstances, the court can make the decision based on the property status of the applicant.
9. Inflation
Even if you are not familiar with the precise definition of inflation, you might have experienced a situation where you had to pay a huge amount of money just to purchase a simple roll of tissue. This situation arises when the amount of money circulating within a country largely exceeds what is not supposed to be, subsequently devaluing the currency. Poor productivity is one of the factors that leads to the devaluation, and then the prices of goods jump up, ending up with 100,000 kyats per roll of tissue.
10. Net Worth
You may notice the term ‘Net Worth’ when indicating the wealth of celebrities. Net worth signifies the remaining value once all the owed obligations are subtracted from one's assets. For example, let's imagine a celebrity with a net worth of $700 million. It does not mean that he has $700 million in his bank, readily accessible for any expenses; it actually represents the total value of ready money and the property which can be converted into cash such as real estate, jewelry, vehicles, shares, and bonds, all adding up to $700 million.
Personal Financial Management
Budget
This is the most important part when it comes to personal financial management.
Budgeting can be processed through a book, a spreadsheet, an app or other methods that you find most convenient.
One of the most famous budgeting techniques is the "50 - 30 - 20" rule.
What this rule says is that
50% of income - Essential general expenses such as rent, shopping expenses
30% of income - Things you want
20% of income - Savings or debt payment
It is divided by the ratios above.
It is not roughly impossible for everyone to follow this rule since individuals have various income levels - some do not have to pay rent, or some have substantial healthcare costs. Nonetheless, you should have your own specific ratio that suits your circumstances.
Set an emergency fund
Keep an emergency fund which should be ready to be used in case of unexpected situations such as job loss, abrupt hospitalization, or natural disasters.
Have money rules
Prodigality is not something to be proud of. You should have sound financial guidelines when it comes to money. For example, limitations on weekly spending, setting the minimum amount to be saved from your income with commitment, etc.
Pay off your credit card monthly
Pay off your credit card on a monthly basis if you use it.
Keep your finance organized
Be organized when you deal with finance. Systematically arrange all relevant documents and information, about savings, money transfers, loans, taxes, and trades.
Set financial goals
Set short-term and long-term financial objectives. For instance, paying off all the debts this year, purchasing a house before turning 30, etc.
Pay yourself first
Once you get your salary, put the amount you set in your savings as a priority before allocating the rest of your money for other expenses.
Saving Strategies
100 envelope challenge
Is this approach to saving money somewhat unusual?
In the 100 envelope challenge, you write 100 random numbers on 100 envelopes, with each number corresponding to a specific monetary value in your country. Every day, you draw one envelope and deposit the money equivalent to the number written on it. For instance, if you draw an envelope with the number 100, you would put 100 kyats, and if you draw 1000, you would put 1000 kyats into the envelope.sr
In that way, you will have to complete 100 days.
Money fasting
Fasting is usually known as refraining from food on Uposatha days or a method for reducing body weight. Then, what is money fasting?
Set a time limit and try to refrain from spending money on anything except for essentials during that period.
Start a side hustle
Try to possess another second income stream in addition to your current job. Instances would be selling crafts or foods, setting up a small business, blogging, content creation, doing an internship while studying, teaching something you have learnt, etc. In some universities, students can look for jobs through their specific university websites. However, we need to keep an eye on those opportunities.
Shop smart
When you go shopping, ponder which store offers the best value for your money and which brand provides high-quality products. If you are in need of clothing, we would suggest thrifting instead of buying new items right away. Used goods are not only budget-friendly but also eco-friendly.
One of the enemies of saving money is the impulse purchase. This is like when you find something that captures your attention, pick it up, and make the purchase, saying “Oh, that looks fancy,” without taking a moment to reconsider.
To avoid the impulse purchase, you should ask yourself these questions before buying something else.
Need or want?
Can I afford that when I check back with my budget?
Is the price reasonable? Can I find something cheaper than this?
What would be the benefits to me if I buy this?
How long will I use this after the purchase?
Is it rentable?
Can I wait for two or three more days to make my final decision?
Have I got something similar to this item?
Do you urgently need this?
What's the number of working hours it takes for me to earn the same amount as the cost of the item?
Now, we are at the end of the article. Today, we shared some knowledge about financial literacy. We, Study Diary, are currently running the GED Program and Conversation Club which are free of charge. Besides, we consistently publish research contents, primarily for the younger audience, so if you have not already, please consider liking and following our page. Stay tuned!