I’ve often said that corporate and personal finance are two very interrelated worlds. Here in Michigan, we have elected a governer with a high business acumen, as well as elected a mayor of Detroit with a corporate background. The public realizes that the government needs to run in a similar fashion to the corporate business model, and the end goal is to return a profit to the company and the shareholders. Running your household is essentially the same thing as running a company. Invest wisely, cut unnecessary expenditures, plan ahead, budget, and ultimately turn a profit. Instead of shareholders you have the members of the household, which is most likely your family. Well a key component of corporate finance is knowing the difference between variable and fixed costs, and how to manage them.
One of the most important aspects of personal finance is that we spend less than we earn. After all, the only way to accomplish spending more than you earn is by taking on debt. Since the economic crash I’ve seen countless articles give the finance concious a way to lower expenditures in hopes of paying down debt or simply to save more. Let me go on record by saying that I wholeheartedly agree with the idea of lowering your expenses. Many of you aren’t going to see an increase in salary year over year, nor are you likely to inherit a financial windfall, or win the lottery. If you want to paydown debt, or save more money, you are going to have lower your expense-income ratio as much as you can comfortably can. However, and this is what irks me, I’m tired of hearing about the low hanging fruit of your expenditures.
It’s no secret that one of the worst types of consumer debt to hold is in the form of credit cards. Despite the increasing savings trend since the economic fallout, the average household still carries an average of $14,743 of credit card debt. What’s even worse is that those credit cards carry an average interest rate of 14.83%. I’m not saying that credit cards don’t carry their fair share of benefits like fraud protection, travel insurance, and in some cases generous rewards programs, but they carry a great deal of risk for those who can’t use them properly. For some people, the cash only life is the way to go.
I have seen a lot of discussion topics on teaching children financial management at a young age so that they will carry the principles with them throughout life. We need better education in the school systems at the elementary level, and parents need to teach money management techniques to their children as well. Where the others have failed, Milton Bradley, the Parker Brothers, and board games have long succeeded.
You will hear many financial planning professionals tell you that automating your finances is one of the best ways to save, invest, and keep a budget. You can direct deposit your paychecks, have your employer automatically deduct 401k and health insurance premiums, have ALL of your monthly bills auto-debited from your bank account, and then setup your credit card to be paid in full at the end of your billing cycle. In the spirit of Earth Day, let’s also include paperless statements in the realm of automation as well…since walking to the mailbox and opening an envelope is pretty manual.
I feel like I should change the name of my site to the “Top 5 Blog”. The format allows me to complain…errr, explain my view points in a very succinct and readable format. I’m pretty sure that whenever my blog is ready to support affiliate marketing I will have alienated so many mainstream companies that they won’t want anything to do with MoneyIsTheRoot! Today’s posting is about Costco and why I’m personally not buying the hype, or the annual membership.