7 Signs that you’re Financially Smart

Being mentally and emotionally savvy does not automatically indicate that you’re smart with money.

Hence, you could be earning an average of $6,500-10,000 monthly, and still end becoming a financial burden on colleagues, friends, or family members before the month runs out.

Likewise, you can earn as low as $3,000 monthly and still keep things tidy, meeting up your financial obligations and still having enough money to put away for the rainy days.

If you do not have any of these signs that shows that you’re financially smart, then you can pick up all and more of the habits of financially smart person.

1. You Have a Steady Stream of Income

Being financially smart starts with becoming financially independent.

A financially smart person is one who is gainfully employed, or earns enough money from a stable, legitimate business.

If you’re smarter, you did think of having other passive sources of income along with your regular 9-5, or business which would leave you with more time to enjoy fun activities or engage with families and friends. Some passive streams of income you could take up as a financially smart person include:

• Buying stocks
• Investing in real estate and rentals,
• Writing a book
• Creating online content for popular social media sites including youtube, tiktok, and facebook.
• Having a blog or website with an advertising program or features that puts ads on your website or blog, example google adsense.
• Keeping your money in fixed deposits that are guaranteed to yield after a specific tenure
• Converting your hobbies or passion to an income stream. E.g. getting royalties from photos, poetry, or short stories, etc.
• Investing in cryptocurrency etf

The list is endless. Word of caution: if your passive stream of income comes from investments, then you should be careful not to put all of your income at once, but build-up your capital overtime. Remember, Rome was never built in a day.

Read Also: 7 Superb Financial Goals You Can Attain

2. You Have a Budget

The wealthy always prepare a plan as to how they will spend their income and how they are going to save it.

Being financially savvy, you need to have a daily, weekly, monthly, and even an annual budget showing your expenditures.

Why having a budget when you’re earning well? A budget helps you to keep your spending in check and prevents you from buying things impulsively, or taking other financial activities you have not planned for. Hence, the goal of having a budget is to:

• Ensure that you don’t spend more money than you earn
• Prevent you from impulse spending
• Help you to allocate the right amount of money for your living expenses.
• Keep you in tab as to where your money goes

Read Also: 9 Practical Budgeting Tips for Easy Money Management

3. You Have Money Tucked Away In Your Account for Meeting Emergency Needs (Emergency Fund)

Financially smart people know that it is important to have a safety net of emergency funds should there be a case of emergency which they have not budgeted for, or do not have the money to take care of such emergency need.

Example, you can be out of job, or struggle with your business, fall ill unexpectedly or sustain an injury, have issues with your plumbing or structural damage to your home, family needs, or even natural disasters, loss money to online scams, and more.

Having an emergency fund to fall back to in case of any mishap will help you get back on your feet without having to borrow.

How much should you save? As a money-smart person, it is ideal that you have an emergency saving that can cover 3-6 months living expenses, or have a minimum of $9000 earmarked for catering for emergency needs and situations.

Read Also: 6 Habits You Can Learn from Successful Savers

4. You’re spending Below Your Limits

Financially smart people control their spending by being frugal.

Spending below your limit does not makes you a miser as is wrongly conceived by majority who do not understand money economics.

A simple lifestyle of not wanting the things you cannot afford, acquiring only what you need, and sticking to your budget will ensure that your spending does not go overboard above your income, leaving you in debt.

As a financially wise person, you should adopt the 50/30/20 rule to keep your spending below limit.

• Budgeting 50% of your income for daily needs and essentials like food, clothing, transport, utilities, and housing
• 30% (can be pruned down to 15%) on wants like eating out, relaxation, hobbies, and other wants.
• 20% (can be increased to 35%) for savings, emergency funds, retirement savings, and offsetting debts.

Read Also: How to Live Below Your Means: 7 Hacks You Were Not Told

5. You Are Growing Your Net Worth

Not that you’re aiming to become the richest man, but as a financially-informed person, growing your net worth steadily without impacting negatively on your standard of living or putting you in debt gives you the following advantage:

• Builds your emergency fund faster, helping you to be financially stable in the face of worst economic downturn
• Makes you rely less on debts as a means of meeting up with your financial obligations
• Gives you the freedom and flexibility to make personal, life-impacting decisions like taking up a new career, going on vacations whenever you need it, starting your business, buying a home, helping family and friends, or even giving to charities and foundations dedicated to bettering human lives.
• Makes life after retirement comfortable, and more.

Read Also: 9 Easy Passive Income Ideas for Women

6. You Have an Insurance

Insurance protects you from the effects of negative events like auto-accidents, home damage, illness, etc.

Hence, a financially smart person knows that insurance is the right way to go because it prevents you from relying heavily and depleting your emergency fund should the need arise.

The list of things you can insure is endless, but for a start, you should have a health, home, and auto insurance cover to help you cushion heavily the effects of suffering from life-threatening health issues, auto-accidents, and loss of home to fire or other disasters.

7. Have a Good Credit Rating

What makes you a financially smart person is your ability to differentiate between a good credit from a bad credit.

Hence, it is not a wise decision to get loans for every of your whims.

If you’re getting a loan for mortgage, it is considered a good credit because it helps you build up your assets.

However, it is important that you build a good credit score by ensuring timely interest payment to prevent accumulated debt and also enjoy the following:

• Lower interests of subsequent loans
• Fast and stress-free loan and credit card approval
• Better terms and conditions on loans and credit cards
• Lower down payment and good mortgage rate for mortgage homes
• Reduced insurance premiums on homes and autos

Read Also: 9 Financial Habits of Women Who Are Never Broke

Conclusion

Being financially smart is not limited to the seven signs of financial smartness I have outlined above.

Rather, the key to keep on growing financially smart is to be financially literate; learning daily, habits that can prevent you from losing your wealth by whatever means including making poor financial decisions.

Read Also: How to Build a Realistic Wedding Budget: 7 Key Tips You Need To Know