Did you know that not taking your personal finances seriously can unleash a global crisis? We do not exaggerate. Has happened. That is why some countries have implemented financial education strategies. How are you on this subject?
The risks of not taking your personal finances seriously are the same as a large company would assume without a good administrator; equal to those of a person who wishes to cultivate a large area of land without knowing how much to irrigate, when to pay or what labor to hire for the harvest. The result can be ruin, don’t you think?
Both the owner of the large company that does not hire a good financier and the inexperienced grower are applying a maximum in economics: not knowing is more expensive, much more expensive, than knowing.
Simple. If there is no information, there are no good decisions. The possibility of making mistakes is very high. Imagine a person selling your property. Set the price based on what you paid two years ago. And he does not know that the construction of a large shopping center will begin soon two blocks from his apartment. Will you make a good deal? Clearly, the seller will not make the best business of his life and, on the other hand, the buyer probably will.
Information is the key
Not knowing exposes you to three risks:
1. Make bad decisions:
Scholars on the subject have found that people who do not have a good financial education do not actively participate in economic processes, affecting their own welfare and that of their family, and – this is shocking – causing the country, in general, to move slower.
2. Do bad business:
If you don’t prepare with the minimum information to understand your personal finances, you may be doing one of these businesses:
- Accept loans with usury fees, which forces them to devote a large part of their resources to paying interest!
- Participate in “pyramid” type businesses, attracted by highly profitable profits and ignoring the risk of bankruptcy;
- Do not allocate part of your income to savings, because they spend more than they receive.
Any of these three businesses undermined your personal finances.
3. Let good opportunities pass:
Good opportunities are lost because you do not have the money to invest when they appear (you are probably spending it on interest) and also not knowing how to evaluate how profitable the offer is being made to you.
Do you remember the real estate crisis in the United States in 2008? In part it happened due to lack of financial education: in the face of the boom, many people agreed to take mortgage loans (it was easy to ask for it and even easier to approve them), without considering their ability to pay or the interests to which they were exposed. The crisis broke out (because people did not pay their fees and, as a consequence, lost their homes). This crisis moved the entire financial system in the world.
Canada, the United Kingdom, the Czechoslovak Republic, the United States, Brazil, Colombia and Peru, to cite a few examples, have implemented financial education strategies. It is educated from the schools. The issue is considered so important that there are already international tests that measure how much students know about their personal economy.
You should also consider this risk: your knowledge about your personal finances affects others.
What should you know?
You must be prepared to make decisions about your personal finances: understand what and how you spend your money.
Basically, becoming an expert in your personal finances should make your life easier and make these actions a routine matter:
- You make a budget of income and expenses.
- You design a plan to arrive at a certain time to an amount X of savings or to the purchase of a good or a service.
- You take care of the expense, you meet the budget, you keep track of each purchase.
- You know your cash flow to estimate the possibility of making a purchase, according to your income month by month.
- You understand the effect of fees : you analyze the cost of credit operations, including those of credit cards.
- You keep debts under control.
- You allocate part of your income to savings, with a view to future investments.
- You read, comment, listen to economic information in serious media and groups of friends, family or co-workers.
If you want to avoid crises – own and others -, wear and, rather, assume clear positions against invitations to participate in business, politics and economic proposals of parties and governments, you should take your personal finances very seriously.