Part of financial literacy is mapping out your financial life, including forecasting your cash needs into future months or years. For people who have not completed this task, they do not know what they can or cannot afford to spend. When you are spending in the dark like this, it is highly likely that you are overspending in areas that are starving other areas. Those areas that are starved for funding or savings will needlessly become financial crises. These financial crises can take many forms, for example, being unable to afford: A replacement car, home repair, medical procedure, replacement computer, holiday gifts, and the big two expenses – college and retirement.
Another task list for financial literacy is an annual oversight routine. Without this you may be needlessly under or over insured, have an obsolete estate or tax plan, and allowing mistakes on your credit report. Missing this annual review needlessly allows expenses or financial risks to grow hidden from your view.
Another aspect of financial literacy is taking care of the details of financial paperwork. For example, I assisted a woman who received a financial gift and called me to figure out how she was ultimately left poorer with a bad credit rating. This woman inherited some money to pay off the small remaining balance on her home mortgage. Unfortunately, she did not know how to do this and she did not ask anyone for help. She mailed in the extra money to her bank and assumed that they would handle the payoff correctly without any instructions. Instead, the bank held her extra payment in an escrow account. So she missed mortgage payments so that fees and interest charges piled up; plus they reported the missed payments on her credit report. Her financial mismanagement needlessly turned a gift into a curse.
No matter which part of financial literacy may be missing from your normal money management, there is a steep price to be paid. Either spend a little time managing your financial life or you will certainly be paying needless extra costs in many areas of your life.