Oluwadamilola Adeniyi Oyekan
6 min readMay 23, 2021

When you talk about the checklist of things that people need to understand to be considered financially literate, I think it delves into several categories, its numbers into your basic everyday financial living, the basics of debt, and understanding just sort of what credit card debt means, what mortgage debt means, what a car payment means, budgeting, understanding money in, money out. It might sound very basic, but clearly, it is not.

If you are not financially literate, then you have to worry about your spending, you have to worry if when you retire, you won’t be able to meet your goals.

Financial literacy can be divided into these four (4) main parts:





INCOME means the money you have coming in. Money received for works or through investments. You do not have to own a business to get on this ride. Start thinking about how you can make yourself more valuable to potential employers, coworkers, and customers. How can you do your current job better, even if it is a minimum wage job, internship, or volunteer position? Are you working harder than others — first one there, last one to leave, not texting while on the job? These types of choices help differentiate you from others, and in turn create value for you in the job market.

Remember, in the real world, you do not get paid for EFFORT, but rather when you CREATE VALUE for others. And managing that money is just as important as earning it.

EXPENSES are money going out. How do you spend the money you have earned? Do you even know where all your money goes? Many people do not! One thing is needed, you need to construct your own financial budget and how you execute upon that; all I mean by that is to understand that there are fixed expenses, such as rent, car payment, phone bills, etc., you will need that number to be lower than what is coming in, that is “Expense < Income”. I think the easiest way to resolve this is by applying the 50,30,20 rule, which is 50% of your monthly income goes towards bills and housing. 30% goes towards finances, which is paying off debt or saving, the 20% goes towards entertainment or going out; for things that you like to do.

So, obviously, the fixed have to come first, and you chip those away, and those get done. And then apply percentages to the rest. I think there is very little of that, that goes on. So many things can go wrong when one doesn’t do it, and this is of course very common, you end up living your life in a way you are always playing catch-up, and it becomes very debilitating when someone gets behind. They may have the benefit of the consumption. Then a new paycheck comes, a new bonus comes, and they don’t get to enjoy the fruit of it because they are paying off the last toy that they purchased. And so, you live behind instead of forward. And this has a profound impact on one’s stress level, but also, just their incapacity for the enjoyment of life. If people could just start with that by layering financial priorities in their month-to-month cash-flow planning, that would be the immense first step towards financial literacy.

ASSETS are stuff you own. Everything from your savings accounts to a house, to a car. Any property of your own that has value. The road to building assets starts with saving. Form a habit of saving, saving regularly for “unexpected” expenditures, you know that your car will need a repair, your cell phone may get stolen, you may get ill. You make your savings a fixed expense. It has to come straight out of your checking account. You are paying yourself first. When that is in place, that opens a lot of freedom to then go do other investment accounts. It will help you avoid financial troubles and pitfalls. As you build your savings, make sure to diversify your investments. Remember, never put all your eggs in one basket. Just do not! Because if that one basket should fall…well, you get the picture. You can purchase stock; the best way to do this is by purchasing an index fund with a small amount, or an ETF or a mutual fund because they are getting broad exposure to many different companies instead of just buying one position. A mutual fund is a professionally managed investment portfolio that pools from all sorts of investors, like you, who are looking to diversify their investments. It is the easiest way to ensure you aren’t putting all your eggs in one basket. An index fund or ETF (Exchange Traded Funds) are similar, except they are managed to match the performance of a group of companies, say a group of tech companies. So instead of picking individual stocks, like I want Apple, Amazon, you might just buy an index that includes a whole basket of these companies together. There are kinds of indexes out there, the most common might be the S&P 500 representing sort of 500 major publicly traded US companies. With diversification, you can take comfort in knowing that when the value of one asset is down, others will likely be up. Note that your investment is for the long term not some get rich quick scheme. One powerful tool in your plan should be compound interest. Albert Einstein once stated, “The most powerful force in the universe is compound interest.” The best way to take advantage of it is to start saving when you are young and investing strategically after you have your real-world savings account ready. Over the course of 20–30 years of compounding, it's adding hundreds of thousands of dollars. Focus on compound interest and not simple interest!

LIABILITIES are debts you owe. The time value of money can also work against you. A lot of people get into financial trouble by constantly spending more than they earn. Credit is readily available today. That is both good and bad. It is good because credit can enhance your ability to undertake attractive investments such as a college education or a home. I fundamentally believe that there is a difference between buying something with credit that is an asset versus consuming something with credit. When you go to the pizza place with your friends and use the money you do not have, you don’t still have the pizza, it is really gone. Whereas when you buy a home, you are borrowing money, but you are purchasing an asset that retains some degree of value and then assuming that the servicing of that debt, paying that person back with interest is affordable, it enables you to buy a very expensive asset before you have to save for the whole amount. By being able to make a really sacrificial endeavor to save the down payment and take on an amount of debt that the services of which might even be less than they are paying in rent anyways, or maybe equal to it, then they are building equity. However, borrowing can be bad; when you borrow to buy things that will soon be of little value, using a student loan to go spring break or max unit credit cards only to pay the minimum amount due. When you recklessly spend more than you earn, your financial anxiety will build as your wealth declines, and you make large interest payments on items you’ve already consumed. As a general rule, paying for your vacations and your surfboards, and your clothes shopping, and your nights out with your friends with credit, well clearly, the asset is gone. You have zero assets, but you still have the debt. So, all you are doing is making yourself poorer by doing that. The avoidance of credit card debt early is probably one of the great blessings a young person can ever give his/herself. It is very debilitating to have to unwind significant credit debt when you’re really buying to get ahead and move forward in your adult life.

These are the checklist to take home;

i. Maximize earnings through a Budget.

ii. Save to Build up Assets.

iii. Put together a diverse Financial Plan.

iv. Limit Expenses and Liabilities

Successful personal finance is about following sound principles and cultivating them as a way of life, a manner of living. You can enjoy financial security, even if your earnings are modest. But it will involve both planning and commitment. Develop your plan and resolve to maintain it throughout your life.

Your future self will thank you!