The Psychology Of Personal Finance
Personal finance simply means everything in your life that has something to do with money. For example, buying groceries, going out to a club, renting a house or buying a new car are all related to personal finance because they involve you and your money.
As you can see from this description, your personal finances are a very important area of your life because they affect virtually every aspect of it. This is why it is absolutely essential that you learn to understand money, learn how to manage it and learn how it affects you, because whether you like it or not, money will continue to have either a positive or negative effect on you for the rest of your life.
In this article, we are going to be looking at the psychology of personal finance so that you can gain a better understanding of your finances, use your cash more wisely and avoid needlessly wasting it on things that you don’t really need.
Show Me The Money!
In today’s society there is great emphasis placed on money, or more specifically, how much money a person has or earns. In addition to this, great emphasis is also placed on the things we own, our material possessions.
The more “stuff” we have, and the more expensive it is, the more successful we are supposed to feel and the more successful people think we are. Regardless of whether you agree with what I have just written or not, the fact is that’s just the way society is and is a mindset which begins very early in childhood.
I remember when I was at school it would be cool to wear expensive designer label clothes. The only the trouble was, I didn’t have any “cool clothes” just regular brands my mum would buy for me. Then one day I asked my dad to take me to the shop because I really wanted a designer label sweater so that I could wear it to school on a non uniform day. After a lot of nagging, my dad eventually bought one for me.
It cost $75 and I remember feeling very proud now that I had my first piece of designer label clothing. When I wore it to school on the next non uniform day, I expected people to comment on what I was wearing. But nobody did! It was just like I was wearing any other piece of clothing.
As you can imagine, this was quite a disappointment for me because I thought that by wearing an expensive top I would automatically become cool. But I didn’t. In fact, people treated me the same and nobody said anything about what I was wearing.
From then on I decided that I didn’t care what brand was written on my label, as long as I liked the look of something I would wear it.
Spending Money On Things You Don’t Need
The point of my story is that we all spend money to buy certain things that we need in life, and we also spend money to buy the things we think we need. However, a lot of the things we think we need, we don’t, and the only reason we buy them is because someone either directly or indirectly tells us to.
In my case, I thought that by wearing an expensive designer label top people would treat me differently. So my peer group and my expectation of what they wanted and what they would like, indirectly caused me to purchase something.
This is one of the main reasons why young people are so bad at managing and saving their money, because all around them they are both directly and indirectly being told to spend, spend and spend until they have nothing left.
You only have to look at the adverts you see on TV to see how we are being directly told to spend our money. There are so many goods and products pushed onto us everyday, all of which promise to improve our life or make us happy in some way.
Of course, in order to get these items, you have to spend your money and only then will you get the benefits that they promise. As a result of this mass advertising, people will work very hard to earn money so that they can then buy these things and live a “better” and “happier” life just like they see on TV. If they can’t get the money they need by themselves, they will go to extraordinary lengths to get it.
Some people for example, will try to win money, some people will try to steal money, some people will try to marry for money and some people will even try to kill for money. All because they want the goods and products which the media tells them they should have.
Material Goods Do Not Create Happiness
Unfortunately, what these people fail to realize is that the material goods they so desire can never make them truly happy. Sure, they may make you feel good for a while, but eventually, you become bored with them or realize that you don’t actually want or need them. Just like I did with my expensive designer sweater.
This illusion of happiness which the media creates is exactly that, an illusion. True happiness can only come from within you, not from the things you buy or own.
If material goods were the key to life long happiness, then surely every wealthy person would have a perfect life where they were always happy and content. But obviously this is not the case, as there are just as many unhappy rich people as there are unhappy poor people.
So when it comes to understanding and successfully managing your personal finances, just remember that money is necessary for survival because virtually everything we do in our life is affected by it in one way or another. But do not confuse money with happiness, because that is something money cannot buy. Only you can bring yourself happiness, and it always starts from the inside out.
The more insecure, unhappy or inadequate you feel inside, the more things you will buy in an attempt to make you feel better. This is an important point and one that you should remember, because it is the very reason why so many people are so bad at managing their money and become broke as a result.
The Importance Of Personal Finance Education
Despite its obvious importance, very few people have actually been taught how to manage their money. The people who do know how to manage their money are usually the people who have studied economics or finance at college or university, and sometimes, even they don’t know how to manage it properly!
It certainly does make you wonder why so much time is spent teaching students a multitude of subjects at school, yet little, if any, time is spent teaching them how to manage their money. As a result of this lack of financial education, most students leave school financially illiterate with the most basic understanding of how money works and its value in society.
Most tend to think that personal finance is only for those people who already have lots of money, and so don’t even bother trying to learn about financial matters. Whilst others tend to think that money will somehow take care of itself, so all they worry about is having enough money to buy the latest designer clothes or electronic equipment.
Are You Financially Illiterate?
If you think that you are financially illiterate, don’t worry, it’s not your fault. You were never taught the importance of personal finance and financial planning, so how can you know something which nobody ever told you about?
Instead of being taught how to use your money wisely, the adverts you have been exposed to since childhood have been teaching you to spend your money and telling you what to spend it on.
But there is no point crying over spilt milk, as what’s done is done and you can’t change the past. But what you can change is your future, which you can do right now by becoming more aware of your financial situation.
Is Personal Finance Hard To Understand?
Everything worth doing in life and has some degree of difficulty associated with it, and personal finance is no different. So if you are looking for some easy get rich quick scheme, I’m afraid you will have to look somewhere else because this article deals with the reality of personal finance, regardless of whether that reality is pleasant for you or not.
Sure, it can seem intimidating to learn about things such as insurance, taxes, interest and investments, but once you decide to yourself that you want to learn about these things, you will, even if they don’t apply to you at this point in your life.
But the same can be said for any subject which you want to learn about. Initially, things might seem unfamiliar and uncomfortable for you, but the more time you spend trying to work something out the easier it will become.
Actually, what you will find is that a lot of personal finance comes down to simple money management and not blowing it all on useless things which you don’t really need. In other words, personal finance involves a bit of common sense and an understanding of the psychology of money.
Financial Life Lessons
Another way you will learn about personal finance is simply by living, because your life will give you plenty of lessons to learn from. Some of which will cost you a lot to learn! Another point worth making, is that what you need to learn about money also depends on your age.
For example, if you are working a part-time job or trying to get yourself out of debt, the important thing to focus on right now would be learning how to make what you earn last and go a long way. Or in other words, budgeting your income to meet all your expenses.
As you become more financially secure, you can then start focusing on other things such as the stock market, shares and bonds, if that’s what interests you.
So don’t be put off by the term “personal finance” or think that you have to be an economist to understand it, because as I said previously, personal finance simply means everything that has to do with you and your money.
Is Your Future Income Financially Secure?
One thing that many people fail to realize, is that when it comes to money you have to treat it like a young child. If you take your eye off your money and don’t watch what it is doing, it will quickly run away from you and you could end up losing it all.
So money is something that you have to watch (manage) all the time, because if you just leave it to sort itself out you might get by for a while, but fast forward a few years and you could be in a very bad position indeed.
This is why most people go bankrupt. It isn’t because of some sudden event that takes all their money away. But rather it is due to neglecting their money over a prolonged period of time, until eventually it catches up with them and they realize that they have nothing left.
So taking the time to look after your money now is going to pay off for you later, as it will help you to avoid losing it all through neglect. With the money that you have managed wisely, you will then be able to ensure financial security for both you and your family, without having to worry about whether next month’s paycheck is going to be enough to pay the bills.
Why Don’t People Talk About Money?
It wasn’t that long ago that sex was considered to be a “dirty” word and something which most people didn’t talk about in public. Today however, “sex talk” is becoming increasingly more common, and most people seem to be more willing to talk about sex than they are about how much money they earn. It’s almost like “money” has become the new dirty word.
Of course, there are some obvious exceptions to this. The first can be found in the entertainment industry, where we are constantly told how many millions a certain sports star or actor recently made. The second exception can be found amongst the people you know, the people who know that they have more money than you.
In cases like this they will happily disclose to you how much they earn, because in today’s society, money is equated with power and status. So by telling you about it, they get an immediate boost to their self-esteem.
However, it should be noted that this does not apply to everyone who is wealthier than you, as generally, it is only those who are insecure with themselves who feel the need to boast about their wealth. People who are secure with themselves tend to keep their finances private.
Why Don’t We Like Talking About Finance?
Our societal reluctance to talk about money is first evident during early childhood. For example, you may recall asking your parents how much money they earn and then being given an evasive answer. For some reason, our parents didn’t want to tell us how much money they earned, and most were more willing to talk about sex related subjects than they were about finances.
Even at school we didn’t seem to talk about money. If we were lucky, we may have learnt the value of certain coins, but we were never told how to manage our money or how to use it wisely.
Later in life when people get married, even couples seem to avoid talking about money, only mentioning it when it becomes a problem. But by this stage it’s usually too late, and so it’s no surprise that heated financial arguments are one of the leading causes of martial break-ups.
As you can see from the examples given above, there seems to be a cultural trend in our society which tells us that talking about money is bad and so it should be kept a private matter. As a result, the only people we really hear talking about money are those who have a lot of it, those who ask other people for it and the financial experts we see on TV.
The effect of all this is that it tends to reinforce our cultural reluctance to talk about personal finance, because we are made to think that this is something which only applies to the very rich.
Should Your Money Really Be A Private Matter?
Keeping your personal finances private isn’t necessarily a bad thing, as you probably don’t want everyone knowing how much you earn a month or how much you have saved in the bank. However, this doesn’t mean that you should never discuss financial matters with other people, because by doing so you could end up saving yourself money or even making money.
For example, talking with a friend about how to save money on your shopping bill or inexpensive places that you can go to enjoy yourself over the weekend, could help you to avoid needlessly wasting your money and manage what you do have more efficiently.
Or perhaps you might ask a friend for advice on choosing the best car insurance or asking what insurance policy would be best to take out on your home. Maybe they made a mistake from which you can learn from?
Of course, you don’t have to follow the advice which you are given, but by raising these sorts of topics with your friends and colleagues you will find that your awareness of money related issues begins to grow. Once you start thinking more about money, you will then find that you automatically begin to handle your finances much better than you did before.
The reason for this is simple. Once you start taking an interest in money, an interest into how it really works, you will begin the process of actively managing the money you do have rather than just hoping that it will sort itself out.
So from now on, try not to see money as a dirty word, because it isn’t. The more you talk about money the more you will learn, and the more you learn the more you will earn.
Do You Live A Financially Sustainable Lifestyle?
Do you live a financially sustainable lifestyle? Or a lifestyle that is headed for debt? Answer the following questions to find out!
• Do you often eat out or have food delivered to your door?
• Do you spend a lot of money on going out?
• Do you often treat yourself to new designer label clothes?
• Do you spend a lot of money on electronic equipment, movies or music?
• Do you see your car as a status symbol?
• Do you often forget or lose track of how much money you spend?
• Are you in debt?
If you answered “yes” to any of the questions above, then you are most likely living a financial lifestyle that could result in you being very poor by the time you retire.
What’s even more alarming is that this lifestyle describes around 80% of all young people, which means that if this trend continues, there are going to be a lot of poor pensioners in the future who will be almost entirely dependent on others for support.
So in this part of the article, we are going to be looking at how to reverse such an unsustainable lifestyle, and instead, create a new one so that your future will become much more financially secure.
Your Financial Expectations
The first step when it comes to changing your financial lifestyle, is to re-evaluate your expectations as to how things should be.
For example, if you expect your first house or flat to look like something which you have seen in a magazine, it is going to cost you a lot to get it looking that way. But unless you have a lot of money coming in, these expectations are both unrealistic and dangerous because they could leave you with little or no money to save, or worse, land you heavily in debt.
So take some time to think about your current expectations as to how you should live and the things you should own. If you find that your expectations are too high (i.e. you want expensive things which you can’t afford) then you must realize right now that this is a financially unsustainable lifestyle, and unless you change your expectations, you will never get a grip on managing your money successfully.
This is not to say that you shouldn’t have high expectations for the future, because everyone needs goals which they can work towards. But it does mean that if you want to live like a king, but currently have the money of a pauper, then you better be prepared to make some short-term sacrifices so that you can reach your long-term goals.
If you have high expectations as to the type of lifestyle you should live, you are not alone. The fact is that the large majority of people (both young and old) desire a lifestyle that is greater than what they can afford, and the main reason for this, which we touched upon earlier, is the media.
Spend Money & Buy
Ever since we are children we are constantly exposed to new products that we are told to buy. First, it begins with small stuff like toys, breakfast cereals and sweets which we then relentlessly beg our parents to buy for us. Then, as we grow older, we start to pressure our parents for other things such as clothes, music and video games.
By the time we are adults, we want more expensive items such as cars and computers, only this time, it won’t be mom or dad buying these things, it will be you. Next thing you know you have all the things you wanted, but you’ve also run up massive credit card bills and possibly even put yourself into debt.
Wasting Money Buying Junk You Don’t Need
It is quite clear that throughout our life we are slowly moulded into consumers, consumers who are regularly told to buy (and desire) what they see advertised around them. But most of the stuff that we buy we don’t actually need, and as a result, end up wasting our hard-earned money on things we could easily do without.
A good example of just how much junk we buy can be seen at your local car boot or garage sale. Here you will find all the items, which were once “essential” purchases, that the owner has now decided they don’t need or want and so is attempting to get rid of at rock bottom prices.
Another example could probably be found in your own home! Think about how much stuff you have that you once really wanted, but is now lying on the shelf gathering dust. All of those unwanted items represent an effective marketing campaign which led you to purchase a particular product, and, they also represent a lot of wasted money!
Why Do We Waste So Much Cash?
Although there are many reasons why people buy things they don’t need, in general, most of these purchases are due to the endemic low self-esteem of westernized society. The products we see advertised to us all promise to improve or enhance our life in some way. As a result, we are led to believe that buying them will make us happy.
This is essentially a form of something I call “fake self-esteem”, because we allow how we feel about ourselves to become dependent on the things we do or do not have. As long as we are purchasing new products and the promises they give us, we feel happy and content, at least for a short while.
Eventually however, we grow bored with these products and feel let down because they didn’t really make our life any better than it originally was. As a result, we look to new products to make us feel happy and so the cycle begins again.
This is the basic principle behind most forms of advertising. Make you, the consumer, feel inadequate with yourself or your life in some way, and then present a solution to your worries in the form of a product. From an advertiser’s perspective, the less happy you are with your life the easier it will be to sell you a product.
Self Esteem/Personal Finance Exercise
If you are trying to manage your finances better, but are struggling to cut down on your expenses, try doing the following exercise.
Look around your home at all the things you own. Is your house full of junk that you don’t need? Are there items which at the time of purchase excited you or made you happy, but now no longer do so?
If so, then you most likely have low self-esteem and you don’t even realize it. Unless you are able to create a genuine sense of self-esteem, one that comes from within, you will find it very difficult in life to resist the promises of the media and advertising.
As a result, you will continue to accumulate more and more things, but at the same time, will feel more and more unfulfilled in your life and have less and less money. For this reason alone, when it comes to successfully managing your personal finances, it is absolutely essential that you understand and develop your level of self-esteem, because the lower your self-esteem is, the less money you are likely to have in your life.
What Must You Spend Money On?
Now that you have seen how society teaches you to spend money on things you don’t really need, now we are going to be looking at the things you do need to spend your money on, the bare essentials of what it takes to survive.
When it comes to understanding and managing your personal finances being aware of these expenses is very important, because the money which you have left after those expenses have been honored equals your level of disposal income. Or in other words, the money that you can use to spend on non-essential items or money that you can save or invest.
Taxes
Taxes are compulsory, and although you may not like it, this is an expense you can’t avoid.
Property Costs
Unless you live with your parents, you need to spend money on a place to live. If you own your own property, then you will have additional costs such as property taxes, a mortgage and a home insurance policy.
Utility Bills
In addition to the money it takes to buy or rent a property, you will also have to spend money on things such as gas, electricity, water and a phone line. You may be able to reduce your utility costs by managing how much of them you use, but you cannot avoid them completely.
Food Bills
You need to buy food in order to survive, but you can reduce how much this will cost by cooking your own food instead of buying ready-made meals, eating out or having food delivered to your door.
Transportation
If you need a car to get around, then this is going to cost a lot of money. If however, you are able to walk, ride a bike or use public transportation, you can significantly reduce how much money you spend in this category.
Debt
Most debt can be eliminated by managing your money carefully and by not buying things you don’t need or can’t afford on your present income. If you are in debt, the interest on that debt will keep growing which could end up costing you a lot more money in the long run.
Health Expenses
Depending on whether your country has a national health service, if you get sick this could be a major expense. In addition to this, there are other expenses you may be required to pay for such as visits to the dentist or optician.
Education
If you are studying for a degree, then expect to get yourself into debt as education can be very expensive. To avoid making matters worse, be careful how much money you spend when you are at university. If you are not in full-time education, you may also have some educational expenses such as any courses you take or any books you buy.
Insurance
If you have a house or a car, you need insurance. This is something that you cannot avoid.
Savings
Unless you want to be poor and dependant on the government when you retire, you need to save a portion of your income for your future. Although many people think that they can avoid this expense by not saving, in reality, this is something which you cannot avoid but only delay.
Future Expenses
This category includes anything that you know you will definitely need in the future.
Things You Can Save Money On
The list above gave you a brief idea of the kinds of expenses that are essential just to survive. Most of these expenses you cannot avoid, and so you must take that into consideration when you are trying to manage your money. What you have left after these expenses, you can then spend on other items if you choose to.
But again, always question whether or not you really need an item before you buy it, because it would be far better for your future to get into the habit of saving more rather than spending more just because you want something. So let’s look at some of these optional expenses now.
Household Items
Unless you are going for a feng shui look, you probably want to decorate your house so that you can make it a home.
Some items like beds, tables, sofas and chairs are necessary. But do you really need expensive artwork, the latest hi-fi system, a home entertainment system or the fastest PC on the market? Can you do without these items? Or at least avoid getting the newest and most expensive models you can find?
TV & Video Games
TV is a major expense, and is something that most people feel that they could not live without. First, there is the cost associated with buying a TV, and depending on what make and size you go for, this could cost you thousands. In addition to this, you will also pay extra if you choose to buy cable TV, an entertainment system or DVD/BluRay movies.
For some people, TV is so important that even though they are struggling financially, they still choose to buy the largest and most expensive flat screen TV they can find. This makes absolutely no sense when it comes to trying to manage your personal finances, as TV is not essential to survival and is therefore something that you could do without.
Video games tend to be an expense mainly for males, although the Nintendo Wii and DS have seen a sharp increase in female gamers also. Again, video games may be fun, but they are essentially a waste of both time and money and so are an expense which you could easily avoid.
Cars
If you don’t need a car, then you can save a lot of money by not buying one and using other forms of transportation instead. If you do need a car, do you really need the latest and most expensive model that has just been released? Or could you get by with a decent second-hand car?
Eating Out
Although it is necessary to eat food, it is not necessary to eat out. Eating regularly at a restaurant for example, can be very expensive in the long run and is a cost that you could easily avoid. This doesn’t mean that you should never eat out, but if you are trying to get a grip on your finances then just be careful how often you do.
Prepared Food
Buying prepared food is very convenient, especially if you can’t cook. However, this can get very expensive if you do it regularly, so try to make your own lunch for work and your own dinners at home.
Drugs & Alcohol
Once you get addicted to a drug it can be very hard to stop, and unless you are extremely wealthy, there is a very good chance that your drug habit will completely drain your finances.
This is why crime is often associated with drug addicts and smoking with the lower class. If you do take any drugs on a regular basis, stopping them will not only benefit your health, but also your wallet.
When it comes to legal drugs, such as headache tablets or medicated shampoos, go for the lower priced generic brands as they will usually contain exactly the same ingredients.
Personal Items
Think of all the items you buy which you use on a daily basis such as shampoos, perfumes and deodorants. Do you really need to get the most expensive brands? Or could you do with getting a cheaper brand?
Clothes & Fashion
Depending on how important clothes are to you, this could be a major drain on your finances especially if you only purchase brand name designer labels.
So ask yourself, do you really need to spend $100 on some jeans or shoes? Or could you get by with something else? And for women especially, how many shoes do you actually need?!
Education
Education is perhaps one of the wisest things that you could spend your money on, as it should allow you to make more money in the future.
However, not all qualifications are worth the same. So make sure that what you study will allow you to find employment or at least progress within your job if you are already employed.
Extras
Extra expenses could include things such as pets, purchasing gym equipment/memberships, holidays, haircuts and gifts for other people.
What You Want Vs. What You Need
As you can see, there are certain things in life which you need and cannot avoid spending your money on, just as there are things which you want but have the option of whether to spend your money on.
If you only spend money on the things you need, you are likely to have a lot of money saved up. But this will also mean that you probably won’t enjoy life very much.
If however, you spend all your money on the things you want, then you are likely to lose all your money but will probably have a very good time doing so. That is of course, until you retire and find that you have nothing left to support yourself with.
So the key when it comes to successful personal finance, is finding a balance between what you need and what you want. If you are able to get a clear picture of the things you need in life (e.g. pay the rent) and the things you want in life (e.g. go on a holiday), you will find it a lot easier to make decisions as to what you should spend your money on.
Nobody is saying that you shouldn’t enjoy your life or your money, as that is not what personal finance is about. Rather, it is about managing your money wisely by not spending more than you can afford, thinking long-term by saving a portion of your income and avoiding immediate gratification by not getting yourself into debt. Follow this simple advice and you will be able to create a financially sustainable lifestyle for today and for tomorrow.
The Basic Of Personal Finance
Now that you have an understanding of the psychology of personal finance, below we are going to be looking at the basics of personal finance from a financial perspective.
Hopefully, most of this you should already know, but if not, it should serve as a useful refresher to help you get yourself back on track to living a more financially sensible and sustainable lifestyle.
Banks
This section relates to basic knowledge that you should have about banks.
Savings & Withdrawals
When you deposit money into your bank account, you may not be able to withdraw it immediately. For example, depending on your bank, it may take up to 7 days for your money to clear before it is available to you.
Should you wish to withdraw this money after it has cleared, be aware that banks usually impose a limit on how much money you can withdraw per day. What this means is that you may not be able to withdraw all your money at once. When dealing with large sums of money, you may even have to inform the bank of this beforehand.
Bounced Cheques
If you write a cheque but don’t have enough money in your account when the cheque is cashed, your bank will charge you for the cheque bouncing.
In some cases, the bank may also charge the person to whom the cheque was written, which may then result in them charging you to cover any bank fees which they had to pay.
Compounding Interest
You will get the most return from your money if your bank compounds your interest daily, rather than quarterly, semi-annually or annually.
However, if your interest compounds daily but your bank credits you quarterly, you will have to leave your money in the bank for at least three months before you will earn any interest on it.
Credit Cards
This section relates to basic knowledge that you should have about credit cards.
Interest Rates
If you pay off your credit card balance in full and on time every month, then it doesn’t matter what sort of interest rate they charge as it only applies when you don’t pay off your balance in full.
However, you should still be aware of your credit card’s interest rate because if you don’t pay off your balance in full, you may have to pay a lot of extra money on top of what you already owe.
Debit Vs Credit Card
A credit card will allow you to spend a certain amount each month on credit before you are required to pay back that amount.
A debit card only allows you to spend what you currently have in your account. Hence, it debits your account. However, some debt cards also have an overdraft, which provides you with a certain amount of money on credit. In this sense, your debit card is like a trimmed down credit card, and so you should still be careful with how you use it.
Annual Fees
Some credit cards charge you an annual fee just for having the card. However, most do not, so make sure that you look around.
Cash Advance
If you take a cash advance on your credit card, be prepared to pay higher than normal interest rates compared to what your credit card normally charges. In most cases, there will also be an extra fee for requesting a cash advance.
Introductory Low Interest Rates
Be careful when applying for credit cards that advertise low-interest rates, as many of these will be introductory rates that are designed to get people to sign up. After a period of time, usually 3-6 months, the interest rates will go up and may no longer seem so attractive.
Financial Investments
This section relates to basic knowledge that you should have about financial investments.
Stock brokers
A common misconception which many people have is that you need a stock broker to make an investment. This is not true, as nearly all investments can be purchased without a broker.
Pursuing investments independently can also work to your advantage, as you never know when the broker is working with their best interests in mind rather than with yours.
Of course, this doesn’t mean that you should never get advice or seek help with your investments, but rather, to be cautious of the advice you get which you have to pay for.
Risk Of Stocks & Real Estate
Whilst stocks can be quite risky, they can also give you large returns and so you shouldn’t necessarily let this risk put you off. You can minimize the amount of risk that you are exposed to by using stop-loss orders.
In the case of real estate, this should be viewed more as a long-term rather than short-term investment. This means that if you want to sell your property, you are going to have to wait for the housing market to recover to a respectable level before doing so.
Stock Market Fluctuations
The stock market naturally fluctuates, and so there will be times when your stocks go up and times when your stocks go down. The worst thing that you can do is to panic and sell all your stocks when the market suffers a big drop. Rather, the reverse is true, as this is usually a good time to buy.
401k Pension Retirement Plans
Retirements plans are generally considered to be a good investment because the money in them grows tax-free until it is withdrawn. However, if you choose to withdraw your money early from your retirement plan, you will most likely be subject to tax and a withdrawal fee.
Insurance
This section relates to basic knowledge that you should have about insurance.
Car Insurance
Even though you may have some sort of collision or accident insurance on your car, if someone takes you to court, you could still end up having to pay a large fee. In order to protect yourself from this, you need to have some kind of liability insurance which protects you from lawsuits.
Assessments
Everyone who drives a car is not assessed equally for car insurance. Factors which may be taken into consideration include your age, the type of car you drive and your previous driving history.
Generally speaking, if you are young and new to driving you will be charged more, and if you have had accidents in the past, your insurance premiums will also be higher.
Health Insurance
If your country doesn’t have a national health service, then not having health insurance could turn out to be a very costly mistake should you become sick or injured.
However, health insurance can be expensive, so if your employer does not provide you with it, be sure to look around for the best price and only take out a policy that provides you with the coverage you actually need.
Life Insurance
Life insurance covers the people who were dependent on you in the event of your death. If no one is dependent on you, life insurance is not necessary.
General Finance
This section relates to basic knowledge covering general financial.
Financial Advisors
Although you don’t need a financial advisor to invest or manage your money, having one may help you to avoid making foolish mistakes.
However, a bad financial advisor could just as easily cause you to lose money, so make sure that you get a good one. Often, this will mean paying more, but in the long run, the extra expense you pay should end up paying for itself.
Your Will
Many people think that the best time to make a will is when they start working, and then update it when they retire. This is not the best way to go about things, as your will should be updated with major changes in your life.
For example, a good time to update your will is when you get married, buy a house, get divorced, change job, have children and when you retire.
Rental Deposits
If you choose to rent a property, the landlord will usually ask you for a deposit of one month’s rent. This is meant to cover any damage to the property while you are staying there and will be returned to you if there is no damage. In some cases, you may be able to earn interest on this deposit.
Mortgage Rates
When buying a house, the longer your mortgage agreement is the easier it will be for you to pay it back. However, a longer mortgage also means that overall you will end up paying back more than if you took out a shorter mortgage.
With shorter mortgages you may save money in the long run, but you need to make sure that you can afford your mortgage repayments. So if you are in an unstable job, this may not be the best option for you.
