Financial Literacy: A Beginner's Guide

Introduction

• Financial literacy is about making smart financial decisions to achieve the lifestyle you want.
• November is Financial Literacy Month in Canada.
• Many Canadians are struggling financially due to the pandemic.

Importance of Financial Literacy

• Helps in making better decisions with finances.
• Can lead to having more money and effective money management.
• Crucial for affording better things in life, retirement, and handling emergencies stress-free.

How Money Works

• Money is payment for goods/services; work involves trading time for money.
• Understanding and managing finances can prevent financial waste.

Earning Income

• Foundation of personal finances.
• Types of income: hourly wages, salary, commissions, tips, bonuses.
• Consider lifestyle, benefits, and job demand when choosing a career.
• Don’t rely on just one income source; consider multiple income streams.
  • Earned Income: Common 9-5 job.
  • Profit Income: Selling goods/services for profit.
  • Interest Income: Earning from lending money.
  • Dividend Income: Received from company shares.
  • Rental Income: From renting assets.
  • Capital Gains: Selling assets for profit.
  • Royalty Income: From allowing use of your property.

Investing

• Essential for building wealth.
• Stock Market: Entry barriers are low.
  • Options: self-directed investing or robo-advisors.
  • Accounts: Cash account, TFSA, RRSP.
• Real Estate: Requires significant capital; options include direct investment or REITs.
• Business: Investing in personal or others' businesses requires thorough research.

Saving

• Spend less than you earn.
• Budgeting helps in tracking and managing expenses.
  • Categories: needs, wants, debts, savings/investments.
• Pay yourself first: Save before spending.
• Savings Accounts: Aim for the best interest rate to counter inflation.
• Emergency Funds: Start with $1,000-$2,000 and build to 3-6 months of expenses.

Spending

• Understand different methods: cash, debit, credit, prepaid cards.
• Cash: Limited to available funds, harder to track.
• Debit Cards: No debt risk, but limited benefits.
• Credit Cards: Build credit, offer rewards, but risk of debt.
• Prepaid Cards: No debt risk, budgeting tools, but do not build credit.

Managing Debt

• Good Debt: Student loans, business loans, mortgages.
• Bad Debt: Car loans, credit cards without payoff.
• Leverage as a tool for financial growth.

Financial Protection

• Insurance: Car, home, life, business insurance.
• Ensure asset protection under CDIC and CIPF.

Learning Financial Literacy

• Free resources: YouTube, blogs, podcasts, workshops.
• Paid resources: Books, courses, mentors.
• Practice and take action to apply knowledge.

Conclusion

• Financial literacy is crucial for achieving financial goals and living desired lifestyles.
• Continuous learning and practice are vital.
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