If you think personal finance lessons are only reserved for those who are in the world of business, think again. To be able to manage your money well, you need to know how to do it. You must grasp the basics so you are able to make the best decisions when it comes to borrowing, saving, and investing. Whether you like it or not, the things that you need to be able to live decently in this world revolve around money so knowing how to handle it is a must.
Let’s use a very common occurrence that a lot of Americans grapple with—budgeting. Living from paycheck to paycheck has become the norm for many and so is getting too deep in credit card debt. Many get a car or a house (or both) that’s too expensive to afford. All these symptoms point to one fact: The lack of basic knowledge about the correct allocation of funds and resources.
Budgeting is the foundation of effective personal finance and unless you know how to do it in theory and in practice, it’s going to be nearly impossible to have a stable financial future. The ability to save and invest will depend on how well you apportion your salary to ensure that you can meet the needs for today without sacrificing your future security.
Aside from budgeting, there’s also the need to be apprised about interest rates because they are always there. From credit cards to mortgage to savings to investments—the interest will determine how much you will ultimately end up paying. If you happen to be saddled with a car loan that is too steep in interest, you might end up not being able to afford it in the long-run. A mortgage loan with high interest rates will put you closer to foreclosure than if you were given a competitive market rate. When it comes to savings and investments, knowing which bank and investment vehicles give the best interest rates will allow you to maximize the returns on your money.
Credit reports and credit scores need to be understood as well since they play a vital role in personal finance management. Nowadays, you can’t afford to be irresponsible with your debts as doing so can have a disastrous impact on your life. Since your payment history is reported to the major credit bureaus, your chances of being able to obtain credit at the best interest rates and even your ability to get a job are affected if you don’t keep a clean credit record.
From a wider perspective, learning about personal finance is important because how you handle your money will ultimately affect your family and the country. Money issues are a common cause of divorce among couples and children often get affected.
Financial failures also impact communities and ultimately, the country. The recent housing crash and economic downturn that the United States is still reeling from up to today is an example of this. While financial and lending institutions are also to blame for the lax underwriting process that accompanied most mortgages during the housing boom that ultimately led to the housing bust, the homebuyers are partly to blame as well. A lot of them knew that they were getting a home that was too expensive for them. But lulled by the initial low or no-downpayment scheme, they decided to just go ahead and take a chance only to find out later that producing the extra money to pay the mortgage is almost next to impossible.
The way you handle your money has serious repercussions, not only to your personal life but to your family and society as well. Thus, it’s extremely vital that you take the time to learn about personal finance concepts.
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