Managing Your Money In The Aftermath Of The Financial Crisis

We live in a complicated world but one thing we must learn to do is to how to manage our money. Using Money and understanding the world of finance are fundamental to modern living as was proved when the financial crisis occurred. The financial whiz-kids were found to have had as little knowledge and understanding about money and finance as the rest of us even though they were being paid for their supposed financial expertise.

Unfortunately the rest of us were expected to pay for their mistakes and tightly or wrongly we all face difficult times for several years to come.

The one big lesson we should all learn is to reduce our dependence on debt and credit to fund our lifestyles. We may have felt confident of being able to continue repaying our loans and debts if everything stayed the same but in this world nothing is for certain.

Circumstances change and when you are living near the edge of a financial precipice it doesn't take much of a slip to find yourself over the edge and sliding into financial ruin.

It could happen to anyone but it is more likely to happen to you the closer you run to the edge. Living on borrowed money puts you under the control of the people you owe money too. Borrowing to fund your lifestyle means your lifestyle costs you more, because of the interest payments, than it would cost you if you lived by using cash to pay for everything.

There is a reason the executives at the financial companies were able to pay themselves enormous bonus payments and that is that one way or another, you were paying for them. Every time you take out a loan, use a credit card or buy a house with a mortgage you were putting money in their pockets.

Lending people money has to be the easiest way of making money in the world. You lend the money and sit back and wait for all the profits to roll in. All you have to do is to make sure the people you lend money to will be able to repay the debt and you know you will be rich in the future.

We are the poor peasants who make these people rich and we have allowed them to convince us that buying lots of stuff is what makes us happy when the truth is, it does not. Buying lots of stuff, ON CREDIT, makes you very unhappy because you spend the rest of your life trying to keep up with the repayments.

Borrowing money is the only option for most of us when it comes to buying a house but we don't need to borrow money to buy all the other stuff we spend money on. Buying a new TV on credit sucks because it costs us more and we could still be paying for the old one when we decide we want to get a new TV.

The lesson in personal finance management we must all learn from the financial crisis is that borrowing money sucks. It may be great for the financial companies who make enormous profits every time we do use credit but it is bad for us and makes us the wages slaves who work only to pay our debts.

There are lots of benefits from using only the cash we have available to buy what we need. The only disadvantage is that we have to learn to be patient and wait a while before we buy what we want to own.

The reality is that by using cash we have more money to spend. We avoid wasting money on interest payments and over the long term we can afford more things and we will have the money available to buy whatever we want.

Paying interest on loans, debts and credit cards sucks the money out of your bank account and leaves it dry. Paying interest on loans and credit cards means you are paying not only for your own life but you are also paying for the lifestyle of the bank employees as well. Common sense tells us that if we are supporting not just our own family but also funding the banks employees lifestyles we will struggle and while some of them enjoy a good life thanks to us paying for them.

All that money spent on interest could be yours to do with as you please. If you begin a program of using cash for your purchases it will be difficult at first but as time goes by you will find you have more and more cash available because you are not paying all that money out in interest charges.

Albert Einstein famously responded to the question of what is the most powerful force in the universe by saying it was compound interest. Compound interest is what has made the banks and financial companies so powerful that governments cannot allow them to fail. Compound interest is what makes your credit card bills hardly seem  to reduce even as you pay your monthly repayments but it can work in your favor.

If you use cash for purchases the avoidance of the effects of compound interest on your credit cards suddenly begins to benefit you simply because you are not paying it. Each time you use cash when you would previously have used a credit card you are saving money you would otherwise have had to find and pay to the credit card company.