We’ve all heard about IQ and EQ and how they play important roles in getting you into university and avoiding breakups. But did you know that FQ, or financial quotient, is just as essential to the level of quality of your life? For what good is topping the exams and being happily married if you can’t even pay your debts or go gracefully into retirement?
A person’s FQ is gauged by how well he handles his money so that he achieves financial fitness, credit intelligence and budget acumen. People with smart money sense make wise financial decisions that come in handy when a crisis arises or when retirement finally comes.
The good thing about FQ is, unlike IQ which depends a lot on your parents’ DNAs, financial intelligence can be learned and it’s not even rocket science. Here are the basics:
Five Elements of Financial Quotient
When you consistently spend more than what you earn, it’s the surest way to becoming mired in debt. To get a clearer picture of your financial status, take a balance sheet and list down all your assets and liabilities. Assets include your cash in the bank, income, stocks and investments. Liabilities are mortgage, loans and monthly expenses such as food, rent, gas, entertainment.
If you are already in debt, as most people are, never run away from paying them. Priority debts, like home mortgages, taxes, utility bills should be tackled first and non-priority debts like credit cards and personal loans after. Make a plan to accomplish debt payments. Talk to the lenders; they may offer to freeze interest and other charges, or renegotiate your loan terms.
Spending habits are usually learned from childhood, by observing how the elders handled their own money. As mentioned in debt management, spending should not exceed earnings. If your debts are rising because you constantly spend on items that are not necessary, like dining out or buying designer fashion, you need to look into increasing your financial quotient.
Here are ways to control spending:
- Leave your credit cards at home and take along only the cash you’ll need.
- Shop with a list and stick to it.
- Make an inventory of your personal possessions so you won’t succumb to impulse buying. When you see something you are tempted to buy, leave and go back a few days later.
- Envision how you will be in the future, with a comfortable retirement plan or living on a measly government pension.
Investing Your Money
Your money in the bank depreciates over the years. Learn basic investment principles and start investing in lower-risk stocks to get the best yield for your money. You can learn about investment planning from many reliable sources on the internet or from a trusted financial advisor.
In some countries, non-payment of taxes is not only a debt but a major crime. Learn about tax payment, how to reduce taxable income and federal and state tax rates. Consult a taxation specialist if unsure about your taxes. Evading tax payment could mean imprisonment.
Saving for Retirement
Retirement may seem a long way off but before you know it, you’re a senior citizen and ready to retire. Normally, you want to maintain your current standard of living. But without a retirement plan, it may not happen. Seriously start saving or investing now while you’re active and able. Sign up for your employer’s retirement plan and contribute as much as you can afford. Not only will you have a comfortable retirement plan, contributing more will also lower your taxes and your employer may give more. The forced deduction makes it easier for you to maintain a retirement plan.
Learn more about financial management. Read