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HomeBlog Blog6 Critical Financial Concepts You Must Know
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6 Critical Financial Concepts You Must Know

May 26, 2013 by National Debt Relief

Woman with pen and pencil making budgetUnderstanding some basics about personal finance doesn’t guarantee that you’ll never make mistakes but it can save you a lot of grief. As an example of this, here are six financial concepts you should know that could keep you from making some serious financial blunders.

Understand the difference between wants and needs

There are things you need in life and things you want. It’s important to understand the difference. The needs are fairly limited – shelter, food, companionship and clothing. All else is just stuff we want and, unfortunately, our “wants” can be endless. Whenever you’re faced with a purchase decision, you need to ask yourself is this a want or a need. If it’s a want, you have a choice to make and will need to live with the consequences. This can be frightening but it can also be inspiring.

Accept reality

The fact is that some of your choices are made by scarcity. It could be your years left here on earth or the money in your wallet. In any event, there’s only so much of it. If you’re out of money before the end of the month, you may be ignoring this reality. People who continue untenable spending by using home equity loans, credit cards and other irresponsible borrowings to fund their lifestyles will have fewer choices available in the future. The money they waste on interest charges or other stuff is money that can’t be used to satisfy other goals such as retirement.

Know about ”Opportunity cost”

The meaning of “opportunity cost” it is where we forego something to get something else. For example, if you spend money going to college you’re giving up the money you might have earned working during those four years. But you’re forgoing this money for a greater good – a career that will earn you thousands of dollars more than if you had not gotten that degree. Almost all the choices you make have opportunity costs and determining those costs could help you make better financial decisions.

Discover why to get off the hedonistic treadmill

If you were to get a raise at work or buy a new big screen TV, this may make you happy for a while but then you soon start to take the situation for granted. Then your expectations rise: if I could only get a better car, a bigger house or another raise – things would be even better. You can satisfy those expectations, be momentarily satisfied, then adjust and want more. If this sounds familiar, maybe you need to get off this hedonistic treadmill and maybe look beyond your wallet for true happiness.

Stop throwing good money after bad

Many of the choices we make in life have what are called “sunk” costs. These are expenses we have already incurred and cannot be recovered. The “sunk cost fallacy” is a belief that that with some more money, time or effort we can resurrect the value that’s already disappeared. For example, you could invest in a stock that totally tanks. But you decide to continue to hold the shares rather than sell them and accept the loss. However, by holding on to those shares, you won’t have money to invest somewhere else at a profit.

Know about the time value of money

This gets down to a very simple concept – that the dollar you have today is worth more than a dollar that you’re promised in the future. There are several reasons for this. One is that the dollar you get today is is worth a dollar, while the dollar you might get in the future will probably not be worth a dollar – due to inflation. In addition, the dollar you get today can be invested to make you more money in the future.

Understand the role that risk plays

Almost every human endeavor includes some amount of risk. When you invest, you have a choice of investing in something safe such as a treasury bill that has a low rate of return versus large-company stocks that usually beat inflation. You may want to take some risk to be inflation but be careful of any company that “guarantees” a high return on your investment. It’s always wise to remember the old adage, if it sounds too good to be true it probably is.

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National Debt Relief is one of the largest and best-rated debt settlement companies in the country. In addition to providing excellent, 5-star services to our clients, we also focus on educating consumers across America on how to best manage their money. Our posts cover topics around personal finance, saving tips, and much more. We’ve served thousands of clients, settled over $1 billion in consumer debt, and our services have been featured on sites like NerdWallet, Mashable, HuffPost, and Glamour.

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"When I first decided to go with National Debt Relief and I..."

Moderate National Debt Relief Caller: Charlotte Transcribed WE 1/17/2021 Charlotte: Our call may be recorded. What actually made you decide to work with our National Debt Relief as opposed to other providers? GLYNN: Well, when I first decided to go with them and I talked with the representative, I got a favorable impression of him. And since we've gone with him, we've had very good experience with them. Charlotte: Can you tell me about the program that our National Debt Relief signed you up for? GLYNN: It's a debt consolidation program. Took our credit cards and then working to pay them off. So far, they paid one of my wife's off and one from me. Took the harassing phone calls that we were getting and got them to stop and got creditors to wait on their payments so we could get money to pay them. Charlotte: What did you think about the enrollment process you went through? GLYNN: Enrollment process? Well, it was, I guess... Charlotte: Like how easy or difficult did you find the enrollment process to be? GLYNN: It was no [unclear 0:02:52], just what we could do, and looking at our financial situation, what we was able to do. It's just that, mainly, I was the point where I was fixing to go bankrupt and I didn't want to do that. And this was a way to, I guess, not to go bankrupt. But it still left that option open. Charlotte: In what ways would you say that this program has worked for you? GLYNN: Well, I guess the biggest thing is it stopped the harassing phone calls that we have been getting sometimes five or six times from the same creditor a day. It gave us an opportunity of being able to, I guess, set up a fund that we can use to eventually pay off our credit cards and our debts. Charlotte: About how far would you say that you were in at this point? GLYNN: At the time we signed up? Charlotte: At this point right now. About how far are you in the program? GLYNN: Well, it's, [0:05:00] I guess, about -- I would say I think I was like nine months. And like I say, they were able to pay off one of my wife's credit cards and are working on another one and was able to pay off one of my credit cards, and hopefully be able to pay off another one. Charlotte: Walk me through the interaction with your National Debt Relief negotiator. Give me a little insight on what that experience was like with that representative. GLYNN: Well, he helped us go through and get signed up on a program. He helped us with the getting, I guess, a financial report to establish a savings account to be able to use to start paying our debts off. We didn't know what to do or how to go about doing it. Charlotte: Is there anything about your National Debt Relief negotiator that really stood out and impressed you at all? GLYNN: Yeah, his manner and I guess he was polite and he didn't put down on us. And he led us and showed us the direction we need to go. Charlotte: Is there anything about this process that you would have liked to have seen handled differently? GLYNN: No, not really. Charlotte: If you had to rate this experience on a scale of one to five, and five is that you would recommend to friends and one is you were pretty dissatisfied, how would you rate it? GLYNN: I would rate it at a 5. Charlotte: Would it be okay if I posted your comments as a review on our public website for National Debt Relief? They just like to know what their customers felt about... GLYNN: If you think they're good enough to post. [chuckles] Charlotte: I will send over a link so that you can have it as a record for yourself also at glynncoates@gmail.com. How would you say that your life has been impacted by working with National Debt Relief? GLYNN: Well, it's taken off a lot of the burden off that we were under. We was to the point of, "Just go ahead," and getting a lawyer to file bankruptcy. But this has given us an opportunity to pay some of our debtors back. We made the debts under good face and circumstances beyond our control, it got out of hand. And so, we were trying to -- we wanted to pay them back, [0:10:00] or as much as we can so that, I guess, more ease in our minds. Charlotte: If a friend or a family member were asking you about National Debt Relief, what would you tell them? GLYNN: I'd tell them if they was needing, that they were good to work with and they continued to try to help and work with us. Charlotte: Our call is recorded.

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