Understand Personal Finance And Live Within Means

Friday, July 1, 2011, AM | Leave Comment

In school, and I don’t mean just high school – try elementary – we have begun to talk about sex. In some schools, we have been talking about sex to children for some years now. We have yet to talk about personal finances to our kids.

I hear a lot about people not having enough Math background to take care of personal finances, but that is nothing more than just addition and subtraction.

You need a simple calculator. If you are working with Microsoft Windows, it has a simple as well as a scientific calculator. Use it.

We, of course, all know what the following terms mean. I included them here for the purpose of reminding and realizing them in our lives.

  • Surplus

    Your savings will increase from one month to the next if you spend less money than you make. That is surplus in your family budget. You are doing better than most in the U.S. You are, what the economists call, in the black.

  • Deficit

    Your savings will decrease from one month to the next if you spend more money than you make. That is deficit in your family budget. You are, most probably, trying to keep up with the Jones’. You are, what the economists call, in the red.

  • Debt

    In order to make up for the deficit in your family budget, you borrow money. You are, what is generally known as and keep hearing about it almost everyday, in debt. If you keep borrowing and continue borrowing, beware and be warned you are spending money that does not belong to you. You are renting it for sometime and you have to return it to the owner at the mutually agreed upon time.

  • Heavily in debt

    Now, if you damn well know you will not be able to pay the borrowed money back, now or ever, you are heavily in debt.

    Instead of worrying about your debt, you should be worrying about your lousy mindset. You know why? I tell you why. You have turned into a schmuck. In that case, you need a shrink, a therapist or someone. Don’t waste your time. Go see one. Period.

  • I am not against spending, mind you…

    I think we all have to spend. What I am “preaching” in this blog is spend but spend wisely. As long as you meet your needs and not go overboard, you should do OK in your personal finances.

    For instance, you like to have a big plasma or LCD TV, but it cost a lot more money than you can pay. Why not start saving for it. Before you know it, you will be in a position to either pay for it in full or put down a big chunk of the total price so your monthly installment will be more manageable.

Back to education in finances

Once we understood the following major points and did something about them, then it would be a good start:

  • Educate

    We have a huge financial literacy issue. What’s ironic is you hear a lot about finance but you don’t hear the true basics. And we don’t learn it growing up, or in high school.

  • Forget the unrealistic

    We have had an increasing number of middle-class images in the media that are anything but financial education. The media present a very unrealistic picture of people living like royalty on a meager income in New York city or some place like it.

  • Shun easy access to credit

    The third piece to the puzzle is easy access to credit. That’s what really sets our generation apart from previous generations.

  • Shun the Jones’

    Learn to live your own life. Don’t compare yourself with others. Help others.

That’s good and dandy. What can I do now?

In my previous couple of posts, I have talked about what is known as mindset. You have to change your ways of spending. You have to set your mind to it and wholeheartedly.

Make it a way of life – don’t spend more than you make.

  1. It’s not common that we made double this year than we did last year.
  2. It’s not uncommon that we spent double this year than we did last year.

If you think you are like the majority of Americans and fall into the second category , then stop complaining and do something about it.

In a Nutshell
Try to live within your means. If you think you won’t be able to pay the credit card bill in full and before the due date, you will be getting into the habit of deficit in your family budget. A time will come that you would remain stuck in your financial quagmire.

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