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    Financial Literacy: Key to Creating and Sustaining Wealth

    By

    November 9, 2015

    We all want a financially secure future that sustains our lifestyle and helps us meet our financial commitments with confidence.

    How else will we ensure constant up-gradations to the latest smart phone, laptop, fashion trends, gifts for girlfriends-boyfriends, that first new car et al?

    A secure financial future, however, requires careful planning throughout and most of the experts agree that simple and basic understanding of finances can go a long way in ensuring the same.

    Those who are serious about wealth creation are looking for new ways and means to attain skills, attributes and knowledge about markets, financial instruments and various investment avenues available.

    This has created a curiosity around financial literacy.

    Why Financial Literacy is Important?

    Here are some reasons, why financial literacy is considered a key to creating and sustaining wealth.

    1. To Create a Wealth Blueprint

    Financial literacy instills awareness about financial commitments and future income inflows to meet them. Wealth creation and its sustenance is a key in ensuring a quality lifestyle even in the post-retirement phase of your life. The first step in achieving your wealth related goals is to create a wealth blueprint.

    It is a document that shows your financial strategy by listing out expenses, savings, goals and ways to bridge the gap between where you are and where you want to go. Though it may seem like a rocket science, but it is not. And those who have decent knowledge of finance, creating a wealth blueprint might just prove to be a cake walk!

    1. To Gain Knowledge on Financial Markets and Investments

    For investors who understand the basics behind market fluidity find it easier to assess and forecast the market movements before they happen. How many of us can establish a quick connection between the change in interest rates declared by RBI and market movements? Not many, but those who can, make quick decisions about their stocks, thus reaping gains and protecting themselves from potential losses.

    Markets and financial institutions these days have bouquets of investment instruments on offer. However, not all instruments would be appropriate for you to reach your goals. This is where your financial literacy can help you. As someone who possesses financial knowledge, it would be easier for you to decode the nature of investments and assess risk and returns associated with them in a more effective manner.

    1. Maintain a Well-Balanced Investment Portfolio

    When there is financial ignorance, investments are limited to very small and non-diversified portfolio. Lack of understanding creates a resistance to explore andinvest in new market instruments. When you can set apart the A’s from B’s of financial instruments, better investment opportunities would present themselves as you would be able to invest in various investment vehicles, creating a right balance of risk, liquidity, insurance and post-retirement investments with better returns.

    For example, investment in the wealth plans from ICICI Prudential allows you to grow your money and protect your wealth through a systematic, goal based and disciplined approach.

    1. Create a Pool of Funds for Life Milestones

    Life is unpredictable and so it goes without saying that while we plan for our future, our present must not suffer. Incessant and unmindful investment can rob you of a good lifestyle today and also createa liquidity shortage. Imagine not having any money to meet sudden financial emergency because it is all locked up in investments that cannot be redeemed! When you understand the implications of your financial decisions, such events are difficult to come by. Wealth creation does not mean you live pauper today and king tomorrow. A person with financial literacy would be able to plan better for the key milestones of his life, such as buying a house, paying for higher education of the child, bearing the child’s marriage expenses and planning for retirement.

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    1. Avoid the Debt Trap

    Loans are easy to avail these days. With a steady income flow and readily available credit cards and instant loans it is easy to get carried away. Before you know, you would have fallen into what is infamously referred to as “Debt Trap”. As someone who knows his finances, you are hardly likely to fall into this situation because your planning would be better and you would know when to and when not to pick a loan tab for a certain expense.

    1. Gain Savings from Tax Benefits

    Tax benefits on certain investments and their returns can prove to be a big chunk of saving for you. When you are financially literate you can make a sound investment in such tax saving instruments. For instance, the investments made in Unit Linked Insurance Plans (ULIPs) are exempt from Section 80C as well as the income there from such as capital gain or maturity benefit is also given an exemption under Section 10 (10D) of the Income Tax Act.

    How to Become Financially Literate?

    It’s really not that difficult to achieve financial literacy.

    Here are some ways.

    • Read books and articles
    • Talk and Listen to the experts
    • Join the like-minded community
    • Seek professional advice from wealth managers

    Financial literacy can a long way in making well informed decisions regarding creation and sustenance of your wealth.

    Start your journey today!

    Views presented in the article are those of the author and not of ED.

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