Sunday, July 19, 2009

Financial Primer

Financial Primer

When I think back on my financial situation growing up, I never really understood how many issues that there are when it comes to money. Understanding the major financial concepts early on in life and having some tangible, concrete understanding would have been much better than some random experiences and emotions. Just understanding these important aspects as a young person and how to handle them correctly can contribute to financial well being.

Income

Income is the way money enters your life. Usually, this is in the form of a job, but there are also other sources of income like gifts, bonuses, interest income, and investment income.

My concept of income was rather skewed as a kid. I didn't usually need much money. I like to think that I wasn't that greedy. I generally was happy if I had a bike to ride and some sticks and balls to play with outside and some video games to play with inside. I never got a steady allowance per se, so by the time I started learning about income, I was 14 years old. I think this is far too long to go before you learn about how important it is to manage the amount of money you have coming in.

Expenses

Expenses were not anything crazy. A trip once in a while to the store to get candy with money my mom or grandmother gave me. Or perhaps money that I had saved from a special occasion. I never really had enough money to save until I started working when I was fourteen. Again, that was when I first started learning about expenses.

Interest and Saving

Once I started working at 14, I had to open up a bank account to keep my money safe. I started with a savings account at the local baybank which has been bought and sold several times since then. But the idea of earning interest on my money was something that seemed rather abstract. When you are making 4.25/hr, 1 or 2 percent interest doesn't really matter all that much. I remember thinking, oh, cool, 20 cents interest, now I can get half a candy bar. Even at that age I was disappointed about low returns on my money. But I didn't know about other options.

Somehow I saved my money from working until I had about 400 dollars saved and I used that in conjunction with money and gifts for christmas to buy my first computer. That computer was a great gift because having AOL made me really love having a computer, forced me to become a fast typer, a really important skill for people working with computers all day, and also made me interested enough to really continue working in computer-related fields through college.

Inflation

The concept of inflation didn't really hit me until I got out of college. Of course, for the first time, I was really making money and having to pay for everything. This was great, but I realized as well that I needed to make sure that I had enough money to pay for food and gas. And oh, geez, this seems to cost a lot more to fill up my gas tank now than when I was 17 in high school!!! These thoughts start to really come into play when you see gas prices spiking.

Credit Scores

In college, in my sophomore year I decided to get my first credit card. It was for a small purchases mostly. I knew that I needed to build up credit but I also knew that on my low-paying work-study job, I couldn't afford to pay a huge bill. So I kept the charges under 20 bucks. But then, the second semester of my senior year, my laptop that I used for college died. And I needed a computer to do my work and my programming. So I bought one. It was a refurbished pc that I bought for about 300 bucks. But it let me work into the wee-hours without having to worry about the computer lab being closed. This was my first real experience with credit. Even now I wish that I had started a little earlier. It would have been good to start building a good credit history earlier.

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