The National Need For Better Personal Finance Management
THE RESULT:
Americans are drowning in debt. We’re falling behind on our credit card payments, our car payments and our mortgages, largely because we’re not taking our personal expenses management seriously enough. Foreclosure rates are skyrocketing. Borrowed funds now equal 138 % of annual household income, a sign we have taken on way too much debt.
THE DEBATE:
With the dreaded “R” word hanging over our collective heads, who can stop our country’s slide into debt? Is it the government’s job to stop the insanity or is it our responsibility to clean up our own messes? Shouldn’t we blame our debt issues on our inability to handle our personal finance management obligations?
COMMENTARY:
The stock market is down, and we’re seeing more and more unfavorable news on the economy coming to light these past few months. It doesn’t help that the financial sector has been reporting earnings well below analyst’s expectations, as a result of consumer credit problems and loan write-offs.
Much of the downtrend has been attributed to the subprime mortgage crisis and uncollectible loans that proliferated during a time of loose credit and high spending. Credit losses have been worsening for brokerages, banks and financial institutions as they write off bad loans and suffer through trading losses during a period of economic contraction. Bank of America, for example, reported an earnings plunge of 77 percent this week, after stating that they are reserving over $6 billion towards bad loans.
Financial institutions are in this situation because they are writing off bad debt that their customers have run up. What we’re witnessing now are the consequences of poor personal expenses management by consumers and investors across the board.
This is an example of how our collective personal debt has done a number on our economy.
My opinion? Our personal debt is our personal responsibility. It’s not the government’s job to bail us out from our credit card or mortgage debt. The real questions are: “Why are people in this country so far in debt?” and “What principles of financial responsibility should people be following to avoid such debt?”
At first glance, these questions would not appear to have easy answers. After all, Amazon.com lists over 10,000 books written on the subject of personal finance. It’s confusing, and personal finance management is not something they teach in school.
In reality, all of personal finance can be distilled into three basic principles:
- Spend less than you earn: live beneath your means so you can save.
- Make the money you have work for you: invest what you’ve saved and watch it grow.
- Be prepared for the unexpected: have the right kinds of insurance, and diversify your assets.
Misapplication of these principles leads you into debt; successful application leads you to prosperity.
Most people get into trouble with the first principle, “spend less than you earn.” We each typically have 2-3 spending categories that are represent significant dollars and significant temptation. For lots of people, those include overspending on Housing, Cars, Monthly Services (cable? phone?) and Dining Out. The good news is that if you can make the tough decisions to cut back in those few areas, and have the discipline to stay under some lower budgets, you can make a dent in your debt, start to save and move forward with your financial plans.
Mint Tip: I designed Mint.com to help you readily identify your problem areas, suggest lower cost products and services, and give you all the automated tools available (web and email and SMS text alerts!) to help you keep on top of your money. And with minimal effort required (five minute set up) and for free. Mint is personal expense management made easy. I hope you’ll check out our online budget tool right now.
Further Reading:
Budget Planner
Create A Budget Online
Financial Budgeting Software
Budget Help
Great Article, Aaron. I wish I had mint.com a few years ago. My wife and I were buried in debt in the .com days and then bad investment decisions left us even further in debt and with a HUGE tax bill. We tried credit counseling and every option in the book but were untimately forced into a bankruptcy scenario. We ended up paying down on a mountain of debt and finally paid off our taxes last year. I am happy to report that we are completely free of debt and live within our means. We have also learned how to make credit cards work for us rather than being in debt with them. We are also managing investments and have a CFP that is keeping track of them. Recession or not, we are much better off this time around. I really like what you said above about responsibility. That’s a lot of the problem today. Many people have done what we did…gotten into debt, but they haven’t taken responsibility and they want the government to bail them out. I hope more people will find out about what mint offers and start making positive steps to financial freedom. Thanks for an awesome application
I agree that debt is a personal responsibility, however, I would also like to see financial institutions shoulder their share of the blame. Banks engaged in risky business. They could have said no to folks who were running up credit debt. They could have been more responsible in their marketing. The government should not bail out consumers. It should also not bail out industries that have done a bad job running their businesses. Your article seems to blame consumers and lets the creditors off the hook. Lending is a relationship and one that both sides have managed poorly in this case. That said, I’m taking care of my finances and do not expect help from anyone. I would hope that my tax dollars won’t go toward bailing out creditors as well. Thanks for Mint. It is awesome.
Great post. I especially like the three basic principles. These should be taught in all the schools. Thanks again.
“My opinion? Our personal debt is our personal responsibility. It’s not the government’s job to bail us out from our credit card or mortgage debt.”
I agree. The cushy treatment of those who put themselves in serious debt by overspending really annoys me.
“For lots of people, those include overspending on Housing, Cars, Monthly Services (cable? phone?) and Dining Out.”
True, and how hard can it be? Even for those who are terrible at math, there are personal finance calculators for mortgages, savings and EVERYTHING (http://www.mortgageloan.com/calculator/ has 100+ calculators…) in-between.
But I guess too many people simply prefers to live for today rather than thinking about tomorrow.
Being from Eastern Europe where I grew up with no knowledge or existence of CREDIT of any kind, you just learn to live with the money you have in your bank account. It kills me to see people in this country not being able to save a dime and on top of it use credit for everything. My parents never had credit, never ever used a credit card in their lives and they outright own a couple of houses, they own their cars and have plenty money in savings accounts. I have never seen them stress over money because they didn’t have to, always put aside certain percentage of their income. It’s not how much you make, how much you spend…
I hope mint.com will help many people to concentrate more on their savings and not shopping habits.
I’ve been living by these principles for many, many years. I would love to switch to Mint from Quicken, but I have so much history in Quicken, I’m hesitant. Is there a way to upload my Q files so i can carefully watch my patterns in Mint?
I also need the investments/securities package, not to mention the capacity to upload lots of transactions.
I do love the clean, easy look and feel of Mint. No screen shimmering, no loooong downloads of updates, no backup foul-ups. Thanks.