It having been a long weekend, I couldn’t help but think how important it is for farmers to learn how to manage their own money before they can manage that of the business. We have spoken a lot about farm financial management. However, we need to stress how important it is for farmers to manage their personal finance in a manner that aligns with that of the farm. It all boils down to knowledge, habit and discipline.
Financial literacy is the ability and knowledge of how to effectively manage your finances. It consists of a range of skills and the know-how that allows individuals to make informed and good decisions about their money. Financial literacy is further said to be the cognitive understanding of the main financial components and skills such as budgeting, investing, borrowing, taxation and personal financial management.
Here’s an outline of the key components of financial literacy:
Budgeting: We have covered this extensively in our previous columns. This is the first component in managing your finances. It involves understanding your income and expenses, and developing a plan to constantly track your spending to ensure that income covers expenses effectively.
Saving and investing: This is one of the components that is critical, and yet we don’t speak enough about it in communities. Especially Investing, in bonds, money markets and equity.
Do you ever consider investments for your farming retained earnings to create more value with your money, and how that can be grown, and most importantly as a way of diversifying your
investments, as farming is meant to be an investment? We will cover this in more detail in the next column.
Debt management: Your financial literacy aids in how you effectively manage your finances, and requires the ability to manage your debt such as credit cards, loans and mortgages. One must understand interest rates, repayment schedules and strategies for paying off debt. Taxation: As a farmer, understanding the tax system and how it applies to personal finances is an important component of financial literacy, as it helps you with the knowledge of tax deductions, credits and filing requirements.
Insurance: We have covered the aspects of insurance before. On the aspects of farming, however, it is equally important to understand different types of insurance, such as health, life cover and home insurance, which is essential for managing risk and protecting oneself financially.
Retirement planning: This is an important component that we don’t seem to talk about a lot. However, understanding retirement planning, estate planning and generally preparing to secure the future for yourself and your dependents must be a priority as well.
When you are financially literate, you can set realistic financial goals and develop strategies to achieve them. These plans are then reviewed and repeated over time. Overall, financial literacy is essential for farmers to succeed in today’s agricultural industry, and everything starts with oneself.
Thus, by developing a strong understanding of these key areas, farmers can make informed decisions that enable them to grow their operations, achieve long-term success, financial security and consequently financial freedom.
* Mekupi Kambatuku:
Managing Consultant at Simpli
Business Advisory