What is personal finance and why is it important?
In a very general sense, it’s about intelligently handling your money. It involves understanding how a checking account works, how credit cards and charge cards work, how to understand different types of loans, income taxes, basics of investing, budgeting and being a smart shopper – and of course other things also.
It is extremely important! People who don’t have a grasp of these concepts get screwed when they get a mortgage, buy a car, get insurance, spend their money, and many other things. It’s impossible to get through life without earning and spending money – and nobody is going to care about your finances as much as you are, so the smart thing to do is learn about it so you can protect yourself from scammers, bad investments and rip-off artists.
Here’s an example: years ago, my parents once took out a loan to get new windows. It was a 5-year loan for $3,000. After making payments for 3 years, they wanted to pay off the loan early to save on interest cost. The amount they still owed was almost $2,000. How could that be? They had made way more than half the payments but still owed almost the entire amount they borrowed! It was because the loan was set up in such a way to penalize anyone who wanted to pay it off early (hint: it was a "rule of 78’s" loan). They got screwed because they didn’t understand the loan documents, and just assumed if they paid it off early they would save some money.
People want to be financially secure, and unless you are lucky enough to have a massive income, the way to be financially secure is to intelligently manage your money.
It is managing your money and accounts. It is important because if you do it correctly you will not end up bankrupt and broke.
References :
In a very general sense, it’s about intelligently handling your money. It involves understanding how a checking account works, how credit cards and charge cards work, how to understand different types of loans, income taxes, basics of investing, budgeting and being a smart shopper – and of course other things also.
It is extremely important! People who don’t have a grasp of these concepts get screwed when they get a mortgage, buy a car, get insurance, spend their money, and many other things. It’s impossible to get through life without earning and spending money – and nobody is going to care about your finances as much as you are, so the smart thing to do is learn about it so you can protect yourself from scammers, bad investments and rip-off artists.
Here’s an example: years ago, my parents once took out a loan to get new windows. It was a 5-year loan for $3,000. After making payments for 3 years, they wanted to pay off the loan early to save on interest cost. The amount they still owed was almost $2,000. How could that be? They had made way more than half the payments but still owed almost the entire amount they borrowed! It was because the loan was set up in such a way to penalize anyone who wanted to pay it off early (hint: it was a "rule of 78’s" loan). They got screwed because they didn’t understand the loan documents, and just assumed if they paid it off early they would save some money.
People want to be financially secure, and unless you are lucky enough to have a massive income, the way to be financially secure is to intelligently manage your money.
References :