Why is financial literacy important for managing money?

In the latest episode of The Kahloon Podcast, I had the opportunity to engage in an in-depth conversation with Wali Khan, a renowned expert on personal finance. Our conversation covered all aspects of personal finance and financial literacy for beginners. Understanding the basics of financial literacy, budgeting techniques, smart investment decisions, and how to effectively increase household income were some of the highlights of the podcast.

Here’s a detailed lowdown of what we discussed.

Being financially literate is a soft skill we all need. But what does this term mean? Simply put, financial literacy refers to your understanding of money-related topics. If you can perform any of the following tasks, then you’re financially literate:

• Set a budget
• Manage your bank account(s)
• Achieve a good credit score if you have a credit card

But it goes beyond these basics. Financial literacy also includes more complex skills like:

• Debt management (if you have taken a loan)
• Investing
• Retirement planning

So, it’s safe to say that financial literacy gives you control over your money instead of letting it control you. It also protects you from falling victim to Ponzi schemes and online monetary scams.

Resources to Help You Learn to Budget, Save, and Invest Wisely

There are numerous ways to learn about financial literacy and personal finance. However, determining which resource is most suitable can be challenging.

For instance, a beginner in Pakistan might find Benjamin Graham's The Intelligent Investor difficult to relate to, while a podcast by a local or Indian financial expert could be more aligned with their needs, goals, and budget. Investopedia is a great way to start learning about financial terms, jargon, strategies, and much more!

Track and Trace Strategy for an Effective Budget

Tracking and Tracking your expenses is the perfect way to start budgeting. If possible, include every minute detail that incurred a cost, at least for the first three months, if you are in a financial crunch. Use free-to-use tools like Google Sheets to prepare and share your budget on multiple devices.

Conduct a detailed analysis of your expenses at the end of the month to find out the most significant chunk of your expenses to the most minuscule one. This analysis will help you itemize your expenses, such as groceries, utilities, entertainment/leisure, kids’ education, etc.

Scalable Side Hustles for Passive Income

A side hustle can be anything from offering paid tutorage, creating an e-commerce website, or freelancing any skill that you excel at. Scalability is a major challenge for side hustles. So, pick one growth potential. For example, starting a YouTube channel or creating a similar content project.

The key to standing out from the crowd in a side hustle like content creation is to create a personal brand that resonates with your target audience. Don’t hesitate to step out of your comfort zone! Over time, you may be able to scale your channel and reduce the amount of time invested in creating content on YouTube.

Tips and Tricks to Manage a Side Hustle with a Full-Time Job and Investments

The key to succeeding in your side hustle is effective time management and to avoid micromanaging your tasks. Choose a side hustle that aligns with your strengths. For those considering online trading, remember that it’s not for everyone. Successful trading requires strong nerves and the ability to stay calm during market fluctuations.

Trading and investing require extensive knowledge of the market, currencies, chart patterns, and other indicators and tools. Without the research and knowledge, getting into investments or trading is nothing short of a risky gamble.

Another crucial strategy is dedicated focus time. Identify a time when you can work uninterrupted on your side hustle, such as early morning or late night. Keep in mind that your passive income endeavor should not affect your job performance at your workplace.

Most Common Personal Finance Mistakes to Avoid

Failing to track expenses is a common financial mistake. Many people also overlook investing in the stock market due to its volatility. Instead of long-term investments in fundamentally strong companies, they often prefer high-risk options like cryptocurrency.

While real estate is popular, it typically requires significant capital and isn’t suitable for most individual investors.

The stock market is generally a more accessible and potentially profitable option for retail investors. You can start investing in the Pakistan Stock Exchange with as little as Rs. 5,000.

However, it’s essential to conduct thorough research, understand the capital markets, and carefully select stocks for investment.

How to Save Money in Inflation and Meet Your Expenses?

Increase your Household Income

Soaring inflation, fueled by exorbitant utility bills and heavy taxes on salaried individuals, has dramatically increased the cost of living. Basic essentials like groceries, milk, and utilities have become significantly more expensive.

To cope with the financial strain, many households are turning to dual-income models. Having both partners contribute to the income can help mitigate the rising costs of living and improve overall financial stability.

Encourage Kids to Monetise their Social Media Handles with Useful Content

Teaching children the value of hard work by assigning them small tasks can be incredibly rewarding. These chores not only help them develop essential life skills but also foster independence. As they grow older, encourage them to explore online opportunities to monetize their social media presence and help them turn a hobby into a potential income stream in the future.

How to Start Investing with Limited Funds

Avoid speculative investments promising unrealistically high returns. Aim for a long-term investment horizon of at least 5 to 10 years. Begin with a small amount and gradually increase your investment while building a portfolio of quality stocks. If you lack investment knowledge, consider mutual funds or Exchange-Traded Funds (ETFs) in Pakistan.

It’s crucial to remain calm during market downturns. A long-term perspective helps mitigate risks effectively. Balance your portfolio with dividend-paying and growth-oriented stocks after thorough research and due diligence.

Disclaimer: This information is not financial advice. Stock market and mutual fund investments involve risks. The writer or any guest of his Podcasts at The Kahloon Podcast is not liable for any potential losses.

Lessons Learned from Mistakes and Success Stories

One of the major lessons learnt during an investment journey is to be ready for anything. He is a victim of the file system in real estate in Pakistan and despite paying hefty amounts, he does not hold possession of his plot.

The second major mistake was aiming to become a day trader. After suffering a loss, he had major issues recovering his amount.

Taking a loan was another mistake he regretted. It has become a dead asset for him as it isn’t offering any return on investment. However, the silver lining came in the form of YouTube and his channel has gained significant traction and the income is enough to help him sustain his family if he loses his job. So, Wali Khan has a successful and profitable side hustle.

How can Pakistanis Invest in Overseas Markets?

Opening a brokerage account from Pakistan in a foreign country has its own set of challenges. Several payment-related issues are a hindrance in investing in foreign markets from Pakistan. However, there are some wallets and options available where Pakistanis can invest in foreign markets. The only option is to open a Pakistan Mercantile Exchange or PMEX account.

Wali Khan invests in real estate via crowdfunding as well as regular real estate. You can also invest in Emaar stock in Dubai for maximum profit (not financial advice). Invest in Air Arabia and other stocks with good returns after gaining proper knowledge. In Pakistan, investors can start buying a stake in Dolmen City REIT (DCR) to invest in premium real estate with good returns.

The first thing to consider is if you have children, they are not your source for passive income when you grow old. Another thing to consider is not to invest everything on your children’s education. Your plan should be balanced and should include a significant amount for education, marriage and your old age.

Expats also have a term and other types on insurance schemes but majority of Pakistani expats prefer to invest in Exchange Traded Funds (ETFs). Moreover, diversify your portfolio between stocks, ETFs and real estate for good returns. Moreover, invest your time in a side hustle like content creation. This could be fruitful and can be taken as a hobby in your retirement.

Prioritizing Financial Goals

It’s crucial to recognize that children, while a source of joy, should not be solely relied upon for financial security in old age. While education is essential, it’s equally important to allocate funds for retirement and other life milestones like marriage.

Diversification and Additional Income Streams

Expatriates often explore various insurance options, but many Pakistani expats favor Exchange-Traded Funds (ETFs). For optimal returns, diversify investments across stocks, ETFs, and real estate. Consider developing a side hustle, such as content creation, as a potential income source and a fulfilling retirement activity.

The Bottomline

Achieving financial independence requires discipline, knowledge, and perseverance. By understanding financial principles, creating a budget, investing wisely, and exploring additional income streams, individuals can build a solid financial foundation for themselves and their families. Remember, seeking professional advice when needed can provide valuable guidance on your financial journey.

Originally published at https://www.linkedin.com.