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8 Critical Lessons To Learn About Personal Finances

couple talking to a counselorWe humans make mistakes. That’s just part of being human. Take decision-making. I’ve certainly made some bad decisions and I bet you have, too. The problem with making decisions is that the only way we could always make the right ones is if we could see the future, which certainly isn’t one of my strengths. So, we make a decision and then learn whether or not it was a mistake. In some cases, it will turn out to be a small mistake like choosing the wrong dress or sweater. But in other instances it can be a big mistake such as marrying the wrong person. However, we can save ourselves some grief by learning from the mistakes made by other people and here are eight lessons that could help.

1. Learn to sometimes say “no” to your children

Kids can grow up and turn out to be good people even if they don’t get absolutely everything they see on TV or in stores. We know it’s always fun to watch your kids’ eyes light up when you give them that special something they’ve been wishing for but you don’t have to do it all the time. Many parents give their children an allowance, which helps them learn to manage their finances and to prioritize, which can mean learning to save to buy something big rather than giving in to every impulse.

2. Don’t borrow money to finance home improvements

As tempting as it might be to go into debt for home improvements like upgrading your appliances or redecorating, avoid the impulse. Home improvements are rarely an “emergency” and you can plan for them. It’s just much better to save up until you have enough money to update that kitchen or finish off the basement and not go into debt to do it now. If it isn’t broke, don’t try to fix it until you have enough money to pay for that improvement up front.

3. Learn to have fun on the cheap

It’s really not necessary to rush out and see that new film the week it opens, and all your personal and family activities don’t have to be expensive. You could wait until that new film hits Redbox or one of those discount movie theaters. It’s possible that you could check out a movie at your local library, buy a pizza and have a fun “night at the movies” right at home. You could probably find some fun, free things to do just by going through the entertainment listings in your local paper. We did this recently and found a bunch of free family-oriented activities ranging from a free day at the zoo to a fun pet run.

4. Don’t buy a home until you have an emergency fund

If you’re a young couple or family, don’t make the mistake many people have and that’s to buy a home before you’ve considered all the expenses you’ll encounter, and have a realistic plan as to how you’ll pay for them without running up a lot of unsecured debt. If you’ve never owned a home it’s hard to imagine everything that can go wrong and need to be repaired or replaced. You really need to have a good-sized emergency fund in addition to your down payment before you become a happy homeowner. We moved into our first house and turned on the water the next morning only to discover we couldn’t get by without adding a $250 water softener, which immediately put us in debt and kept us hurting for money for nearly three months. Also, don’t forget that many household expenses can get higher over time while your salaries might not.

5. Learn to say “no” to friends and family members

If you have family members or friends who need financial help, it’s okay to say “no” to them if you would have to go into debt to help them and especially if it’s debt you can’t afford to repay. It’s tough to say “no,” particularly if it’s a family member asking but if you help him or her who will be there to help you repay the debt?

6. Pay careful attention to your personal financescouple worrying about finances

Good financial practices and habits don’t just happen naturally. You have to learn them. The best way to do this is by approaching them like your job with determination and focus. You can’t use the excuse that you were never taught about personal finances or that your parents set bad examples. There is a multitude of websites and books on money management you could read to teach yourself about personal finances. It’s just not that tough.

7. Teach your children about personal finances

No matter how you’ve handled money in the past, you owe it to your children to take the steps necessary to teach them about personal finances, especially about delayed gratification and the importance of saving money. If your schools are like ours you can’t count on them to teach your children about personal finances, as this just isn’t on their curriculums. So you’ll have to make sure you do the job. You wouldn’t let your children grow up without knowing how to ride a bike and you shouldn’t let them grow up without knowing the basics of personal finance.

8. Learn what to do if you get into serious debt

Naturally, the best thing is to not get into serious debt. But if you do it’s important to learn how to deal with it. The most popular alternatives are a debt consolidation loan, snowballing your debts, debt settlement, and consumer counseling. While a debt consolidation loan is fairly self-explanatory, you may not know about the strategy called a debt snowball. This is where you order your debts from the one with the smallest balance down to the one with the largest. Step two is to put all of your efforts into paying off the debt with the smallest balance, while continuing to make the minimum payments on your other debts. When you get that first debt paid off – which should be fairly quick – you then use the new money you now have available to begin paying off your second smallest debt etc. This strategy was developed by the financial guru, Dave Ramsey and here’s Dave explaining more about it himself.

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