Personal Financial Planning - Importance of Good Credit and Retirement Plan - Literature review Example

PERSONAL FINANCIAL PLANNING Importance of Good Credit Whether it be good or bad, it is important to be well informed about credit. Not only businesses but the whole world runs on credit nowadays. Many of us do have our car, home or even school loans. Most of the people residing in the western world do have a credit card in their pockets. The problem with people is that they do not give credit the amount of importance it should be getting. Credit does help people to manage their financial life to a great extent (The Importance of Good Credit 2014). The credit history of a person is something that stays with him for a much longer time period and imposes an impact on almost everything starting from mortgaging a house to getting a job. Credit history of a person is an important source of information as it helps them who provide you with loan to determine that whether or not they can trust you. It also helps them determining the amount that they could lend you and under what terms and conditions. The better a person’s credit history the more likely he would be able to get financing at favorable terms and conditions. Therefore good credit history of person is of great importance to him while getting financing from a financial institution, a private firm or even a person (The Importance of Good Credit 2013). Credit simply means to use the money of another person temporarily. Credit can also be considered as a measure of one’s financial trustworthiness. Credit is a financial obligation that a creditor has to pay after a specific time period. It is a debt that is accumulated from a loan or a credit card. Credit is simply any debt that a person has accumulated either by borrowing, through mortgage, by using credit card, etc. A person having credit means that he also has the ability of borrowing money, which he has to return after a specific period of time and with a particular amount of interest. If a person has an apartment on lease or he has a cell phone account it doesn’t mean that he has a credit history. It is obvious that every person has to pay his telephone bill or his apartment rent but that does not have much impact on his credit rating. Why a person should have a good credit history is not an unfamiliar question. People are quite familiar with the answer as well, however it is worth repeating. A person needs a good credit history so that he may acquire an educational loan i.e. a private loan or Federal plus, etc. Good credit history also helps a person to get a job. A person with a good credit history may also be able to obtain some affordable insurance. A person may also be able to achieve certain financial goals such as buying a new house or financing his own professional practice. A person’s credit history is a primary goal, which helps determining that whether or not the credit grantors will be willing to lend you money. It is clear that the better a person’s credit history the more likely he would be able to get a loan on favorable terms and conditions (Consumer loan its importance? 2013). Importance of using consumer loans Consumer loans are one of the different types of loans that one can borrow from the bank. These loans are considered to be general purpose loans that can be used at discretion. Consumer loans can often be difficult to acquire, as it requires strict qualification. Personal loans are usually unsecured, which means that they do not require the usage of any asset as collateral. So if a person defaults on consumer loan the lender cannot take away his property. This is one of the primary reasons that why consumer loans can be difficult to get. The lender therefore does not have any of your assets to seize if you no more have the ability of making the payment. Even though the lender is not allowed to seize your house or car directly in order to get back his money but still he may take other collection actions. This may include reporting the late payment to the credit bureaus, filing a law suit or hiring a collection agent. However consumer loans can be of great importance to the consumers as they can be acquired during emergencies. It is not an intelligent decision to get consumer loans in conditions other than some serious emergencies because they carry high interest rates. If a person is going for secured personal loan and if he is unable to pay the principal and interest, he may end up losing his collateral (The Importance Of Your Credit Rating 2013). The amount of the consumer loan is usually fixed all around the world and it also depends upon the credit rating of a person. The better the credit score of a person the more money he is allowed to borrow through credit loan. Some banks however do have a lower cap on the lending amount of consumer loans. A person may borrow higher amount from banks that he has a personal connection with. A person who is self-employed or salaried may at times need instant cash for emergencies of different kinds. It is then that they may go for consumer loans. Speed and timing are considered to be important factors while selecting consumer loans across various institutions (Irby 2013). The interest of the consumer loans is locked and it does change for the period or duration of the loan. Like the amount of loan the interest rate too is based on the credit rating. The better the credit score of a person the lower interest he has to pay. Lower interest rates are considered to be ideal because it means that a person has to pay low cost for borrowing loans. Some of the consumer loans do come with variable interest rate which changes periodically (Need and Importance of Personal loan 2013). Some of the uses of consumer loans are foreign or domestic travel, education, marriage, working capital, business expansion, working requirements, medical treatment for oneself or of any other family member, etc. Consumer loans are of great important because they are instant and its interest rate depends upon the credit rating of the person. Importance of retirement plan Retirement is considered to be one of significant life event. It is an event that occurs in every person’s life however the way each person handles it is different. It is of great significance from both the personal as well as the financial perspective. A comfortable retirement is not an easy process as it requires years of persistence and sensible requirement. Once a person reaches retirement, then managing the retirement is also an ongoing responsibility, which should be carried well into the golden years of a person’s life. All the people want to retire comfortably, however it does require time and planning to build a successful retirement plan that will benefit the person for rest of his life (Elmerraji 2009). Early retirement can be critical as it takes years for accumulating necessary funds to live a comfortable life when a person no longer likes enjoying the advantages of salary. If a person is planning to retire earlier, so it is better that he begins investing as soon as he gets employed. This would allow funds to accumulate and grow over the period of time. There are certain perks associated with retirement some of them are monthly benefit checks from the social security funds and low cost medical insurance through Medicare. Retirement brings time and space for the people that were not there while they were working. There are two main components of retirement planning one is personal planning while the other one is financial planning. Personal planning is considered to be important because it determines the level of satisfaction that a person gets with his retirement lifestyle. While the financial planning is important because it identifies your expenses as well as your sources of income and helps you establishing as financial budget based on the personal plan of the person seeking retirement (Importance of Retirement Planning 2014). People seeking retirement do not emphasize much on the personal planning. A person should start his personal planning at an early stage and then design a financial plan accordingly. The retirement of a person is more enjoyable if his income is structured enough to fit in his choices and life style. A retirement plans is also important for a person because it helps him to protect the assets that he has acquired through hard work. An effective retirement plan is based on several steps: Identify your expenses as well as your sources of income to determine the shortfalls and the surpluses. Reviewing and analyzing your retirement income strategies. Reviewing and comparing the retirement income options that are available. Developing an action plan (Importance of Planning for retirement 2014). References Consumer loan its importance? 2013. http://wiki.answers.com/Q/Consumer_loan_its_importance (accessed May 3, 2014). Elmerraji, Jonas. Retirement Planning: Introduction. 2009. http://www.investopedia.com/university/retirement/ (accessed May 3, 2014). Importance of Planning for retirement. 2014. http://www.scotiabank.com/ca/en/0,,3145,00.html (accessed May 3, 2014). Importance of Retirement Planning. 2014. http://budgeting.thenest.com/importance-retirement-planning-22445.html (accessed May 3, 2014). Irby, LaToya. Basics of Personal Loans. 2013. http://credit.about.com/od/avoidingdebt/a/basics-of-personal-loans.htm (accessed May 3, 2014). Need and Importance of Personal loan. 2013. http://www.deal4loans.com/loans/articles/need-and-importance-of-personal-loans/ (accessed May 5, 2014). The Importance of Good Credit. 2014. http://www.accessgroup.org/the-importance-of-good-credit/ (accessed May 3, 2014). The Importance of Good Credit. 2013. http://www.freddiemac.com/homeownership/ready_to_buy/importance_of_good_credit.html (accessed May 3, 2014). The Importance Of Your Credit Rating. 2013. http://www.investopedia.com/articles/00/091800.asp (accessed May 3, 2014). Read More