Thursday, February 26, 2009

Understanding Finances

The Bank issues and problems with getting loans has led me to think about all the problems with todays economy and how credit and finances are effecting people.For the most part in the US, what we see in a recession, much like we’re seeing now is that savings rates tend to climb. That is, more people start socking their money away in order to, presumably, weather the storm.The stimulus package was signed not long ago. Today I saw a headline that a mortgage plan could save 9 million homes. I read nothing but the headline.

The question is, how do you feel about people being bailed of situations they got themselves into? Now, I recognize some people were lied to who got in trouble with mortgages. But what about the ones who simply signed on for mortgages they couldn't afford? What will be the incentive to manage your money wisely in the future when a bailout will be there to save you anyway? And do you think the people who have been responsible with their mortgage choices should help pay for those who haven't?
The lack of financial skills and understanding is a serious and growing problem for young people today. Many high school students receive and submit credit card applications, only to go into debt and destroy their credit rating. The younger they learn the better off they will be, when they grow up. However, it boils down to being the parent’s responsibility. If the parents don't teach them, their inaction will speak louder then anything the kids learn in school. Let's face it, kids learn by watching what their parents do. I am a great example of that. I knew from school and church the right way to handle money, but seeing my parent’s bad habits spoke louder then the knowledge I was given.

Personal finance training helps you to deal with credit cards and overdrafts, which increase your short-term debt. Those debts you must pay back within a short period and using sensible personal finance you will be able to do that. Personal finance is vital as you may be unable to make those payments and therefore personal finance will help you to avoid the penalties and costs that will shrink your budget making the significance of personal finance more visible. Creating a personal budget; Establishing financial goals; Reducing expenses and increasing income; Evaluating insurance needs; Properly handling a checking account; Using credit wisely; Addressing debt; Obtaining credit reports; Improving credit reports and credit scores; How to avoiding becoming a victim of identity theft. A part of personal finance understands what your credit score is. If your score is less than 620, not only will you pay significantly more money for mortgages and other types of loans, but also more for your insurances. With scores low you will have to try to figure out how to refinance with bad credit Your car, life and auto policy premiums will all reflect your credit. An adverse score may also keep you from leasing an apartment, or getting your dream job much less the ability to refinance with bad credit.

A number of companies are beginning to offer a “401(k) debit card” to employees who invest in 401(k) retirement programs. A 401(k) debit card allows you to borrow up to $50,000 or 50% of the value of your retirement plan, whichever is less, through use of a debit card. Unlike a debit card that deducts money from your checking or savings account, a 401(k) debit card withdrawal is a loan you make to yourself out of your retirement savings. More akin to a traditional credit card, you must repay the money you withdraw using the card, along with fees and interest –- or you may incur substantial penalties. There are a number of important factors you should consider before using a 401(k) debit card. It’s really scary people are getting credit cards for their 401K just for personal loans.