Money Management - Coursework Example

Introduction Money management is the practice through which a person keeps focus of the manner in which money is spent. It is important in ensuring that money is spent wisely in order to avoid the problems of bankruptcy, debts and profligate spending. It involves developing a plan on how to spend the available money to satisfy all personal needs. It also involves strategizing on future spending, thereby enabling an individual to save money which will be effectively spent as a lump sum to purchase commodities that require huge sums of money. Through such plans, the person is capable of avoiding debts since purchases will be made mainly from savings. Money management is also significant in assessing the possible impacts of engaging in risk taking, especially where there are uncertainties. An individual draws a plan indicating the amount of money that he/she can risk to satisfy the needs and also remain on the safer side (Belk et al 2003). For the people trading in stocks and gambling amongst other businesses with high risk, money management is usually a significant tool to form the basis of decision making. It helps a person to be in control of his/her income and expenditures, whereby the expenditures are maintained at minimum levels compared to the income. Budgeting is one of the major tools for money management. It is important in giving guidelines for purchasing decisions. This paper is a critical evaluation of poor money management amongst the Americans. The reasons why Americans are so affected by the economy and what they can do to manage their finances better have been discussed. Poor Money Management amongst the Americans One of the aspects of poor money management is usually exhibited in the problems with personal debts. It happens that house holds have access to debts on their credit cards which they are free to use at any time when need arises. This can be a very helpful possession especially in case of eventualities that require money since an individual can settle family needs without much struggling to acquire finances. However, it becomes a problem when not effectively used. It has been established through studies that many Americans use credit cards without consideration of the fact that they accumulate debts which will have to be repaid at the end of the month (Evans et al 2006). Simple loans and overdrafts to satisfy personal needs are also a major contributor to the amount of debt that needs to be settled at the end of the month. When this time comes, the salary received is used to reinstate the debts owing, which leaves a person with little money to finance the needs of the subsequent month. This leads to further borrowing, making an individual to be in debt all the time. It becomes a trend where the earnings of a particular month are spent within that month, leaving nothing to save for the future (Belk et al 2003). With access to cash all through, it is usually difficult to avoid unnecessary purchases. Gambling debts are known to be some of the major problems facing the Americans. Studies have established that there are many suicide cases associated with gambling debts in America. In 1998 and 1999, 19 people are known to have committed suicide because of gambling debts (Grinols 2004). Such debts have also led to prominent people embezzling funds from their organizations to finance these debts. Most of them are later found to have committed suicide. Quebec is well known for such cases of gambling related suicide. This has been a major problem in money management amongst Americans, which needs to be addressed before so many people end up suffering the same fate. Other issues that have been a major cause of poor money management have been associated with spending money without a good spending plan. Most of the unplanned spending usually results in accumulation of debts which turn out to be a major problem. In time of necessity, indebted people usually do not have money to finance their needs. Effects of the Economy on the Americans The American economy is undergoing crisis. This has adversely affected the people mainly because no one had expected that it would be of such intensity. The level of unemployment has risen and very many Americans suffered due to lack of a sustainable source of income. The crises have led to a rise in taxation and wage cuts. Others have taken up the entire roles of their spouses after they were laid off due to the economic crisis. People have been affected to the extent that they have to look for extra income through engaging in the informal sector on weekends. The youth are hard hit due to lack of experience in the job market which has turned out to be very selective of the most experienced workers. In the rural areas, unemployment is widespread thereby making people to live in poverty (Denis 2008). Most of the households are earning less income than before 2007 when the economy was stable. The crisis led to mergers and acquisitions of companies, while others have become completely bankrupt. This has led to mass retrenchment of staff, which has greatly affected the Americans’ standards of living. Part time employment has become the major source of income for a substantial number of people (Wendell 2008). However, this does not satisfy the household needs mainly because it lacks compensation schemes and other benefits associated with full time employment. The prices of commodities have risen while the income remains the same. This has largely affected the purchasing power, and therefore people are compelled to change their spending habits in order to cope with the current economic crisis. More over, banks are unable to offer more loans since after the sub-plime mortgages, many banks have not recovered from the problems of customers failing to repay their loans. Businessmen therefore can not access loans easily for expanding their businesses. Many people can no longer afford to pay for healthcare insurance. Fuel prices have risen, and people are being faced with high costs of transportation (Denis 2008). For example, the American airline has raised its charges, with passengers being charged for luggage inspection, which was not so before the crisis. The economic recession in America has led to desertion of day care services by parents. Children are being taken care of at home rather than being taken to these establishments which are being deemed unnecessary expenditures during this hard time. The aged are playing an important role in caring for the children as their parents go to work. All this is being done in order to cut down on the day to day expenditure. People are changing their lifestyles and working harder in order to meet the essential needs such as rent and food (Wendell 2008). Managing Finances Better It is important that whenever people want to spend money, they develop a simple plan on how all the money is to be spent. Goals need to be identified depending on personal requirements, so that priorities can be set. Each of these priorities needs to be focused on accomplishment of the goals, depending on whether they are short or long term. Through prioritization, an individual is capable of identifying the expenditures that are unnecessary in the accomplishment of the goals. In the planning process, it is recommendable for households to leave some money as reserve that can assist them in case of eventualities (Jamal and Goode 2006). These are savings that can also be used for development purposes. This can only be achieved through dedicated restraint while engaging in activities that need spending. Apart from acting as a source of security for the household in case of urgent situations, saving the money in financial institutions builds credit worth in a person. As noted earlier, the causes of problems are mainly associated with people spending in advance, thereby leaving them with no money to spend once they get paid. It is important to borrow money for use without justifiable necessity. Loans can be very helpful in times of emergencies. However, they are known to encourage extravagance and impulse buying. People need to get used to borrowing for personal spending only at times when they can not avoid it, but not because of the fact that the money is available for borrowing (Quester et al 2000). On the other hand, it is important to evaluate the credit terms in case a person has to borrow money or commodities. The least expensive needs to be chosen in order to save some amount for each transaction involving credit. The tendency of using money acquired through gifts and bonuses extravagantly needs to be avoided. Many people who consider such money not to be useful in other means usually end up using their own earned cash in the process of spending that acquired from other sources other than personal earning. It needs to be understood that this money can also be used in development activities, as well as savings. For example, discounts can be used to purchase another commodity that was in the purchasing plan for next time. Wise people usually distribute their annual expenses by 12 months, and then ensuring that the money is remitted each month. If the amount is payable at the end of the year and no savings per month has been made the whole year, it may turn out to be a bad debt unless an individual earns a considerably high salary. For example, paying $1000 per month is not the same as paying $12000 on 30th December (Jamal and Goode 2006). It is important to avoid buying through impulse. This mainly affects those who go for window shopping, especially when one is in possession of large sums of money. It is most likely that money will be spent on items that are not necessary. People should shop for only the items that are in their shopping lists. Influence from marketers should also be avoided in order to ensure that they do not exert undue pressure on the shoppers to buy their commodities whilst it was not in their plan (Belk et al 2003). It is good to access information on the intended place of purchase so that the prices, after sales services, and other benefits are compared to other dealers offering the same commodities so as to ensure that maximum utility is achieved while the costs are minimized. Many people usually shun from saving little. In fact, in some cases they may fail to collect the balance after making payments for the reason that it is not much. However, if they could calculate what they have left with the seller for all the times they have gone shopping, they may end up realizing that they have lost a lot. A family of four may spend a substantial amount of money over 2 years if such little amounts are lost each time they go shopping. Another significant point in money management is patience (Evans et al 2006). Saving little by little may end up becoming a substantial saving. An individual should not view any saving as inferior. Conclusion Money management is crucial for people who need to be economically stable. Poor management may lead to undesirable situations such as debts that people can not repay. It can also lead to profligate spending which eventually leads to bankruptcy. If people could manage their expenditure properly, they are likely to accomplish the satisfaction of individual needs. Saving some money that can be used in case of eventualities is necessary. Americans did not anticipate the crisis such as the one that affected the economy in 2007. It has therefore adversely affected them, lowering their living standards. It is important that people make plans on what they need, how much they have, where to purchase, and also ensure that they save even the little amounts that seem inferior. Bibliography Belk, R. W., Ger, G., & Askegaard, S. (2003). The Fire of Desire: A Multisited Inquiry into Consumer Passion”. Journal of Consumer Research, 30(3), 78-91. Denis B. (2008). Financial Crisis Attributed to Mortgage. New York: Knopf. Evans M. Jamal A. and Gordon F. (2006). Consumer Behavior, 1st Edition John Wiely & Sons Sussex England. Grinols E. L. (2004). Gambling in America: Costs and Benefits, Cambridge University Press. Jamal A. Goode M. (2001). Consumers and Brands: Impact of Self Image Congruence on Preference and Satisfaction. Marketing Intelligence and planning, 19(7) 482-492. Quester P. Karunaratna A. Li Kee G. (2000). 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