Thoughts On Finance

Our government is in high panic mode trying to fix the current financial crunch that we are in.  I am just wondering why no one saw this coming.  It only makes sense that we have been pouring out Trillions of dollars on fighting terrorism and the war and we have been doing this for the past 7 years.  It only stands to reason that over time we are slowly but surely going broke.  Honestly, if you look at things however, this really was coming to this point before September 11, 2001.  If you look at the trends in banking and in the economy, you can honestly see that interest on bank accounts took a nose dive around the mid 90’s.  Back in 1989, your interest on an average checking account was 5.14% and an average savings account was 5.5%.  Money markets and CD’s went up to on the average about 8-9% depending of course on the term.  Now you are lucky if you are getting about 1% interest on your savings.  This decline started before all this terrorism stuff came to a head.  Didn’t they see this was happening? Didn’t we? I guess I just think that better financial planning could have gone into this.  It is like our government has bounced a million checks in the past week and they are scrambling to figure out where they are going to get the money from quickly.  I just would like to think that our government had a better handle on their finances than this.  It really just seems to me that they could have planned ahead and seen this coming.  I guess with credit card companies charging exorbitant fees and banks charging equally exorbitant fees and interest rates, it seems to me that they would be doing well, but I guess not, which in essence means that the money that we think we have in the banks is really gone.  I am sure in this financial whirlwind that we are in, if we all went to the banks and tried to get our money out, our government would be in quite a pickle.  In any case, I really think that someone ought to be held accountable as this problem didn’t just happen over night, and it probably won’t be fixed over night either.

Balancing debt and credit is a challenge for many of us today. When my parents or grandparents needed or wanted something, they simply saved up until they could afford to pay cash for it. Credit was only used for those large-ticket purchases like a house or car and then it was done with an “installment loan“. Credit as we know it today was basically unheard of and having more than one debt over and above a home or vehicle was out of the question. It was not considered wise.

Well, wise or not, these days easily acquired credit and resulting debt are a part of our day-to-day lives. Unfortunately, the ease and convenience of instant credit has left many of us depending far too much on borrowed money and in turn living in a raging sea of debt. We jumped into those waters before we knew how to balance the convenience of using credit cards and staying out of deep, deep debt.

Having credit is a good thing if you are using it responsibly. It establishes the fact that you can be relied upon to pay your debts, that you are creditworthy and it may in fact help you secure a lower interest rate when you find you have the need for an important loan, such as a mortgage. Without a good credit history, your chances of qualifying for such a loan are greatly reduced. However, using your credit cards unwisely and to the extent that you begin to spend more than you earn can lead to overwhelming debt that you may never be able to pay off.

Installment loans are a good way to establish credit. The interest rates can be very competitive and specified monthly payments are made at the same time every month with a specified time period established to pay off the loan. There are no surprises when the payment becomes due. Often, even if you have the cash to pay for a moderately priced purchase, it could be wiser to use an installment loan. That would of course depend on the interest rate you are earning on your ’cash’ from the bank and the interest rate you could get on an installment loan. If the bank is only paying you 2% and the installment loan has an interest rate of 6%, you may be better off using the installment loan for the purchase, and possibly paying it off earlier and generating a good credit standing by doing so.

It is very important to periodically take a look at your credit card debt. If you can see a pattern of making impulse purchases or purchases that you know you cannot afford, then it may be time to consider paying off that credit card debt. Analyze your monthly expenses and determine what spending you can eliminate and put that amount towards your credit card debt in addition to your regular payment — and don‘t make any more charges on it until you have it under control. Every time you make a purchase on your credit card, you have just borrowed more money. Every time you consider making a purchase on your credit card, ask yourself if you would borrow that same amount from a friend or family member. That may help to put it into perspective.

If you find yourself drowning in that sea of debt, it would be wise for you to seek out a financial advisor that might be able to help you reallocate your income more effectively to address your credit card debt. There are many companies out there that can assist in getting you out of debt. Whatever you do, always keep in mind that spending more than you earn in even a short period of time can be very dangerous, but doing it over an extended period of time can mean financial ruin.