How To Improve Financial IQ

We all know about emotional quotient, which means a person's ability to manage their emotions and also have a better understanding of other people's emotions too. Emotional intelligence has been given a lot of importance because without managing your emotions or having balanced emotions can lead to a more balanced and happy life. Same way financial matters play a very important role in everyone's life. See money is not important and to be happy we don't need money. But life's most important basic needs like food, shelter, and health care can be addressed by money only. So working on Financial IQ is something not to be ignored. Like we can build our emotional intelligence gradually in the same way we can build our financial IQ too.

Financial IQ is not rocket science but the more you get aware of it the better you will be at managing your finances. Being money-minded is something negative but a healthy Financial IQ is something that everyone should develop. You can do only three tasks with money: either spending, savings, or investing. Making money can be important but managing money is also very important. We see many examples in our life where people are very good at making money but due to a lack of financial IQ they most of the time remain in a financial crunch. A sound financial IQ as per your needs will not only help you retain your finances but will also help you grow your money in multiple folds.

Now let's talk about How we can improve our financial IQ. Everyone's earnings and requirements are different. So no one plan suits all suggestions for Financial IQ. But some basics can be worked upon to improve the financial IQ:

1) Keep a check on Savings and spending:

We spend on our needs and wants. Needs are things that cannot be ignored. Like food and house, etc. which are mandatory but wants are not always mandatory. See it's ok to spend on leisure but that doesn't mean spending all your money on enjoyment and entertainment. So better have a balanced approach and cut down on spending on needs which are the bomb on your pocket.

2) Delayed Purchase:

We all love to buy our favorite stuff and many times we just shop impulsively and later we regret it. Delayed purchase is something that will help you in this matter. Suppose you saw a new mobile on the internet and you are tempted to buy it while the mobile you have is also in good condition and working well. In this case instead of buying that thing immediately postpone it for a day or two. Now in this gap, your mind may get shifted and maybe you will not buy it and it will be a good decision for you.

3) Mindfully work on Investment Portfolio:

Many people are of the view that they have a lot of financial responsibilities so they don't have much to invest. This is just an excuse because actually, people don't take investment seriously.

Simply parking your money in a savings account or fixed deposit will not fetch good returns as we know that the rate of interest on savings and fixed deposits is reduced and they give very nominal profits. Instead of a fixed deposit go for a mutual fund sip or lumpsum investment in mutual funds which are safe and give good results if you hold them for three or more years. Always remember to go for blue-chip companies if you don't have a deeper knowledge of the market because blue-chip funds are safer than small and mid-cap funds. If you have time then do your research and find what suits you. Several websites provide authentic knowledge and market conditions that will help you build your investment portfolio. Besides paper assets, you can have real estate investments too if your income is huge. But be careful while investing in real estate because real estate is volatile at times and it also needs time and patience to bring great results. If you wish to create generational wealth, real estate can be a good option.

4) Net worth is the key:

Total assets minus total liabilities will give the picture of your net worth. Many times when we calculate our wealth we include the house in which we live and the car we drive as an asset while actually, they are liabilities. If your car or house is not generating any income they are not assets they are liabilities. Because they can be on loan and EMI is associated with it. Even if you hold the full possession of your house it will only be an asset if it helps you in generating income as a rental property or any other means. So while planning for a house and car do remember that overspending on them can be messy.

5) Be careful about Loan:

There are good loans and there are bad loans too. So many people think that driving a swanky car by taking a bank loan or living in a villa bought on loan can be a sign of wealth. But nope being rich and appearing rich are two different things. Rich is basically about a rich mindset. If you plan your financial journey carefully you will know that in the initial stage you should be minimalist and when the time arrives to get the results of your financial actions at that time going for luxuries will be fine. See loan is not bad every time but just taking a loan for luxuries is not always smart because it will drain your income soon and the resale value of that thing will not be much.

6) Read Books/ Have a Personal Financial Advisor:

Reading books is the simplest way to enhance your financial IQ. The best book to start can be Rich Dad Poor Dad by Robert Kiyosaki. This will help you build the basics of personal finances as well as financial IQ. The Psychology of Money by Morgan Housel is another good book to read for financial IQ. If you don't have time to read books, go for a personal financial advisor.

- Dr. Priyanka Gupta