Do you know the term financial literacy? It’s the ability to manage money. It seems simple at first glance. However, the reality is that most of our population has no idea how to manage money.
Financial Literacy
Learning how to manage money should be taught to children in school. As adults, they wouldn’t get into financial problems and ever-increasing debts. School prepares us for a profession. However, it doesn’t teach us how to manage the money we subsequently earn.
Many people blame their employer for their poor financial situation. They constantly claim that if they had a higher salary, their debts and financial problems would disappear. The reality is that if we give these people more money, the result will be that they simply get into more debt. They will buy more expensive clothes, cars, and things. How we manage money is best reflected in how we manage with little.
Emergency Fund
Experts say that people should have an emergency fund to cover all their expenses for six months. But how can that be achieved when most people live from payday to payday?
We can gradually build an emergency fund, in small amounts, over several years. We will continuously save money in a savings account and only access it in the event of a loss of income, such as job loss or long-term illness. It will also not prevent us from taking sick leave out of fear of lower income.
A firm rule says that we should save at least 15% of our income each month for an emergency fund.
Income versus Expenses
For two months, we will carefully record all our income and expenses. We won’t forget anything. This will show us how to manage money.
In the income column, we write down our salary, business income, passive income and parental allowance (rodičovský příspěvek). In expenses, we record fixed costs such as a mortgage, insurance, leasing and rent. We include food, toiletries, phone bills, hobbies, a hairdresser, manicurist, cosmetics, clothing, massages and so on under variable costs.
Once we have carefully recorded all our expenses, we will likely be shocked when we compare them to our income.
When reducing expenses, we will focus on variable costs. How much does new clothing cost us each month? Do we really consume all the food we buy? Do we mostly eat at restaurants or at home? And what about petrol expenses?
Variable costs are changeable, and it’s up to us how willing we are to give up ingrained habits. For example, driving to the gym and paying for an hour on a treadmill. What about going for a run in the nearest park instead? It costs nothing and fresh air will be better for our health than the air in an enclosed room. There are plenty of alternatives to save money. You just have to look.
I personally know many people who constantly complain that they don’t have enough money, but smoke a pack of cigarettes a day, drive everywhere by car, and come up with a new piece of expensive clothing every two months. And they don’t intend to change these habits. Each month they start from scratch and anxiously watch to see if their salary has arrived. It’s enough to follow a few basic rules to limit their expenses.
Away with Debts
Perhaps we dream of an exotic holiday, or we want to buy a beautiful car. Both are possible. First, we will get rid of our debts. I do not recommend taking out another loan for a holiday. Once we pay off our existing debts, money will grow in our account faster. The funds we have previously paid towards paying our debts and senseless interest can be saved.
We shop for food thoughtfully.
According to statistics, each person in Europe wastes 95kg to 115kg of food per year. This is alarming. Before we go shopping, we write a list of the foods we want to buy. We don’t let ourselves be tempted by promotions in flyers and only buy what we really need. We buy perishable foods with care, as well as baked goods.
It may happen that we cook more food than we can eat. We don’t throw food away, but freeze it.
Fuel costs
Today’s lifestyle directly encourages us to travel everywhere by car. And why not? It’s faster, more convenient, and more efficient than public transport. However, if we are thinking about how to manage money effectively, limiting car use is the first point.
Although a car is essentially a necessity for our lives, it is also a significant expense in our monthly budget. So let’s try to limit its use. We might be pleasantly surprised at how much we can save. At the same time, regular walking will be good for our body and mind.
We pay bills on time
As soon as our salary lands in our account, we pay all expenses for the mortgage, rent, loan, insurance and other things. We gain a better understanding of our financial situation and better estimate how much we can afford to spend. The same applies to other payments, such as a parking fine or property tax. We don’t postpone anything. We might simply forget to pay and remember only when we have a penalty and late payment interest added to the amount.
We don’t buy at any cost
Shops full of goods literally tempt their customers to buy more and more items. However, before we let ourselves be tempted, we carefully consider whether we really need the item. Or whether we can buy the same item cheaper online.
We don’t need an endless number of pairs of shoes or a jewellery box full of trinkets. As soon as we unpack the shoes and decorate our wrists with a new bracelet, the value of these items drops rapidly.
We set ourselves goals
Some people dream of buying a campervan and travelling through Europe in it. Others dream of buying a cottage by a lake, where they can go for weekends. We all have different goals. The path to achieving them is the same.
We determine what our financial possibilities are and set how much we will put aside each month to achieve our goals. After paying all expenses, we put aside the exact amount of money.
How can we appreciate our money?
Tips that will help us secure a greater income.
We invest
The function of money is simple. Although many of us see it as a necessary means to cover expenses, it can actually serve as a tool for creating more money. However, this will not be without risk.
In practice, appreciating money is quite simple. We have an extra 50,000 CZK (about 2,300 USD) in our account and are wondering what to do with it. Yes. How beautiful a holiday by the sea would be. However, this is not the path to financial independence. So let’s choose a different path. We open an investment account, deposit 50,000 CZK (about 2,300 USD) and buy dividend shares. However, we will proceed carefully and with pre-studied knowledge.
We will be paid a dividend once a year, according to the number of shares held. And that’s how money works. It creates additional funds without us having to do anything for it. We can also trade shares on the stock exchange and sell them for a higher price than we bought them. The difference between the bought and sold share will bring us a profit.
If we have a higher amount of money, we can invest it in buying property for long-term rental. This will bring us a nice passive income.
Own Business
When meeting someone new, we inevitably avoid the question “where do you work?”. This is information that the surrounding people will form a judgement on. Beautiful words like banker, manager, tax office (finanční úřad) employee, or deputy director result in one thing. We work and earn money into someone else’s pocket. Many of us dream of career advancement. They dedicate hours and hours to moving up a rung on the ladder in the company where they work. And the harder and more responsibly they work, the better life they create for the owner of that company.
So why work hard for someone else when we can work just as hard for ourselves and our better financial security? Let’s try to think about what we are good at and what we enjoy. Perhaps we enjoy construction. We can then set up a construction company. Or we work as a waitress in a restaurant. Why not open our own instead?
With your own business, the more we work, the more we have. In employment, the more we work, the same salary we have. We can work on developing our business while also going to work. Once we are sure that our business can cover all our expenses, we will start to devote ourselves to it fully.
USD amounts are approximate, converted at the Czech National Bank rate of 21.80 CZK (about 1 USD) per USD on 2 October 2026.
