Chapter 4 Finance
Introduction to Finance
The topic of money management is a broad and sometimes complex one. Ultimately, personal money management involves managing both our debt and also our savings and investments.
In 2021, the average American had a consumer debt balance of $96,371—nearly $100,000 per person. And less than 25% of Americans are debt-free. Consumer debt can include mortgages and credit cards as well as student loans. A key question all consumers should consider is how to manage debt and not become overburdened by it. The first step is to create a budget, which puts earnings into perspective, indicating what we can, and cannot, afford. A budget also entails setting aside certain funds for savings and investment, which help us achieve our short- and long-term goals.
Creating a budget requires an understanding of how money—debt and savings—works. Initially, percentages and interest need to be understood. They drive most of what happens with debt and savings. With that understanding, discussions of buying a house or a car or incurring credit card debt can be addressed from a financial perspective. All the while, retirement is waiting. Preparing for retirement involves saving and saving earlier rather than later. The power of compound interest is on full display when saving early.
This chapter covers some of the basics of money management: percentages, interest, savings, investments, annuities, and loans.
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