Managing Personal Finances
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A course in managing personal finances, in a perfect world, would be required for all high school graduates. But this world is far from perfect and many teens are unprepared for the economic realities of adult life. Even their parents may be struggling to keep up with rising mortgage payments on a variable interest rate loan and multiple credit card obligations. Yet the basic principle is both easy and unyielding. Successful personal finance means that the income has to exceed the outgo. In other words, households need to bring more money into the checking account each month than goes for expenses. In even fewer words: people should live below their means. Of course, this is often much easier said than done. The high level of indebtedness and low savings rate in this country attests to the fact that millions of people need help in this area of life. Fortunately, multiple resources are available to help anyone get a, perhaps belated, education in managing personal finances successfully. Financial software programs and spreadsheets can be very beneficial in tracking household income and expenses.
For most young people entering adulthood, the most important financial considerations are getting a car, funding post-high school educations, and handling credit card accounts. These young adults have more autonomy in managing personal finances than ever before and the thrill of making purchases and financial decisions can lead to economic mistakes. To quote the wisest man who ever lived, King Solomon: "To know wisdom and instruction; to perceive the words of understanding; To receive the instruction of wisdom, justice, and judgment, and equity; To give subtilty to the simple, to the young man knowledge and discretion. A wise man will hear, and will increase learning; and a man of understanding shall attain unto wise counsels" (Proverbs 1:2-5). Young people need wise instruction from competent and respected adults so that a solid economic foundation supports sound and prudent decision-making. The amount of money isn't as important as knowing how to wisely allocate the available income. This is the secret of managing personal finances in such a way that debt doesn't become a problem.
For example, the best kind of car belongs only to the driver. This vehicle may not be brand new, have leather seats, or the latest state-of-the-art sound system. But without any car payments, the thing just seems to run better. Getting an education without student loans may be difficult, but efforts should be made to obtain scholarships and grants so that the final amount isn't an astronomical figure that overwhelms the new graduate. Young adults, especially college students, are bombarded with credit card offers. But managing personal finances with wisdom means saying no to even the most tempting reward programs. It's a financial tragedy for young graduates to leave college with not only a giant student loan obstructing their financial futures, but also mounting credit card debt. Another temptation arises when that first paycheck from that first "real" job arrives -- young adults want the same standard of living as mom and dad, forgetting how long it took mom and dad to reach that point. An increased standard of living may mean paying more than they can afford in rental or house payments, trading in the paid-for heap for a shiny new, straight off the showroom floor set of wheels, new wardrobes, and extravagant spending. When the high monthly expenses catch up, and they most certainly will, the young person may lack the wisdom to appropriately correct the situation. And how sad to be facing financial difficulties at a time when the future should be bright and exciting.
Fortunately, many resources exist for the person who is willing to take managing personal finances seriously and to make the necessary changes to improve her financial situation. In a way, it's very simple. Money comes into the household through income which can increased by working additional hours at the current job or by getting a second job. That money can be either spent or saved. Personal financial experts almost unanimously agree that, except for tithing, people should pay themselves first by putting a certain percentage of income into some type of savings or investment account. (Tithing comes before any other expenditure.) The remaining money needs to go first to the basics of shelter, food, and clothing. Monthly debt obligations need to be paid, too, but only if the person owes money to creditors. Those living debt-free lifestyles have many more choices of how to allocate the additional money they have. Some choose to save for financial goals, others to be a blessing to others through additional giving, and many choose to accomplish both. Being debt-free should be the primary goal of managing personal finances for young people, old people, and people in between.
For a young person just starting out, the time is perfect to set achievable financial goals. There are very good principles to follow and the wise individual will seek wise advice when making financial decisions. All teenagers want a car, but a cheap dependable vehicle provides transportation just as well as a newer model and without the monthly car payment. Borrowing money for an education may be considered more of an investment than an expense, but even this indebtedness should be approached as a last resort to avoid receiving a giant debt as a graduation present. Cash in the bank is better than credit cards in the wallet. Young people who are managing personal finances need to be wise savers and spenders so that their financial futures are built on a solid economic foundation.
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