Finance is an unavoidable part of our lives, but sadly, financial education is often lacking. Schools don’t teach students how to invest or save, and money is a taboo subject in most social circles. However, personal finance is still an important topic to master in order for you to pursue your financial goals. Below are some key areas of finance that play an important role in how to effectively manage your money.
If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.
In business, if you spend more than you make, you’ll quickly find yourself looking for a new career. Unfortunately, most households don’t treat their finances like a business, and their spending is far more than their income. Spending more than you take in means racking up debt, and consumer debt can be expensive, especially if it’s on credit cards.
One way to avoid the pitfalls of overspending is to create a budget. Set limits on different spending categories and try to set aside extra cash for savings and emergencies. Budgeting isn’t about clipping coupons or becoming a hermit. Instead, it’s about learning where your money actually goes and reining in unnecessary spending. By keeping a budget, you’ll be able to stay on track with your financial goals without sacrificing the things you enjoy.
Debt isn’t necessarily a bad thing. For instance, you might consider a low-interest business loan or a mortgage on a house “good” debt. Too much debt, though, is usually a recipe for disaster. Personal finance teaches consumers how to borrow effectively and avoid getting caught in a vicious cycle of high-interest debt.
Many Americans are drowning in different types of debt. Student loan balances are reaching record highs, credit cards are charging lofty interest rates, and car buyers are often underwater on their loans before they drive their vehicle off the lot. With a strong personal finance background, you’ll learn how to get out of high-interest debt and create a game plan for avoiding it in the future.
You work hard for your money, so why shouldn’t your money work hard for you? That’s one of the basic tenets at the core of all personal finance lessons. Anyone can save money by stuffing it into a mattress until they need it. But money loses purchasing power over time due to inflation, so a savings vehicle that doesn’t produce income will really take money out of your pocket.
Personal finance professionals sometimes recommend deploying your money based on your risk level. If you don’t want to take chances, a high-yield savings account or other FDIC-protected entity may still help your savings earn interest. On the opposite end of the spectrum, you can always shoot for the moon and invest your savings in stocks. Either way, personal finance shows that your savings are like a garden that needs tending to produce results. You shouldn’t just plant the seeds and walk away.
Retirement is still a relatively new venture. During the Industrial Revolution, no one thought about retirement from work, and many didn’t live long enough to enjoy the perk anyway. Now that pensions and tax-advantaged accounts exist for Americans, retirement can be a real goal as long as there’s a financial plan in place.
Saving for retirement can be a multi-pronged process depending on the assets and risk tolerance of each individual. Traditional and Roth IRAs can split up tax obligations and help divide asset classes. A 401(k) or 403(b) plan allows you to stock away a large chunk of change each year. Workers have plenty of choices for retirement savings, and personal finance knowledge helps narrow down the possible options.
Although it may be a tough subject to discuss, estate planning is necessary for families who wish to pass assets on from owner to heir. While most people never have to worry about the government taking a cut of their assets at death (estate tax cutoff for married couples is over $10M), proper estate planning is still important.
Without a will or trust, your loved ones could see crucial assets held up in probate court. Or worse, they may be distributed without regard for your wishes. One important personal finance lesson is planning for the unexpected, which means responsibly securing your assets for future heirs.
Work With an Experienced Financial Advisor
We hope you better see why personal finance is important and how it helps us in many different ways. We only have a finite number of high earning years, and running out of money simply isn’t an option. So, by concentrating on the big picture, we’re able to create budgets, understand debt, save for retirement, and still have money left over for non-essentials that we love. The goal of personal finance isn’t to amass large sums of money—it’s about getting more mileage out of the money we earn. If you’d like to learn more or need assistance creating a financial plan that suits your needs, contact the team at Good Life of Mount Pleasant today.