Running Head Personal Finance 2a Personal Finance Wake Up Ca

Running Head Personal Finance2a Personal Finance Wake Up Callteresa

A Personal Finance Wake Up Call Teresa Kelly Purdue University Global May 21, 2018 In May 2018, a report by the United Way indicated roughly 50% of American households cannot afford housing and food, Part of the issue is climbing prices and stagnant wages, but lack of financial literacy also plays a part. People don’t always understand the role of interest in personal finance. Interest rates increase debt for things like mortgages and credit, but they can also increase the value of saved or invested money. The information in Unit 9 improved my understanding of personal finance, how to view interest, and the proper to handle financial matters. Unit 9 changed how I manage money.

In the past, intuition and necessity drove the plan or lack of therefore. Spending priorities, wants not needs, and modeling from parents and friends- not reading or analyzing expert advice- created habits. The strategy focused on paying bills on time, short term savings for emergencies or small down payments on big ticket items to finance less, and achieving immediate financial goals such as having money left in checking at the end of the month. School has changed that approach through necessity. Schools costs require money, Content – MM 212 in particular – has also forced a reflection on poor financial habits.

Unit 9 showed that interest plays a key role in personal finance in two ways. First and most importantly, interest determines how much something really costs. Time, rate, and compounding raise debt exponentially. For example, according to Bankrate.com (2018) the amount paid on a 30 year mortgage for a $170,000 house can exceed $350,000 depending on interest and other factors. At the same time, the simple interest paid in savings and money markets only add about 1-2% per year.

According to the National Foundation of Debt Management (2017), a savings account holding $3000.00 on January 1, 2018, will only be worth about $3060.00 on December 31 while a $3000.00 credit card balance will accrue nearly $450 in interest over the same period. Understanding this can allow comparisons between promotions such as lower interest rates versus longer terms or smaller payments versus cash back at signing. While 72 months at 1.8% interest might produce lower monthly payments, 48 months at 0% interest results in less money paid overall and in the car being paid off sooner. The cash back up front might seem nice, but the additional interest on the increased balance will wipe out that gain in the long run.

Even saving the money and gaining a small percentage of simple interest does not negate the impact of compound interest. Paying down debt faster creates a larger net gain. Unit 9 demonstrated that financial goals have to be more structured and focused on spending less over time by picking the most financial beneficial options. Rather than simply paying bills on time, debt reduction must be the priority. Minimum payments don’t allow for that and cost money each month.

In addition, financing large purchases also adds to debt. Smarter shopping and eliminating rather than reducing use of credit provide better options. Finally, the idea of “money left” is not really a goal. It is not specific or measurable. Rather, planning then doing what it takes save 10% of each month is a measurable, realistic strategy.

Mistakes from the past have provided powerful lessons and allowed me to appreciate what the course has taught. Past experiences with personal finance, interest, and managing financial matters caused periodic stress, but mostly seemed to work. Unit 9 showed a much better approach and revealed the weaknesses of winging it without a long-term plan or focus. By applying strategies over intuition, understanding interest, and creating structured financial goals, managing money and reducing debt feels less insurmountable.

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Personal finance is a fundamental skill that influences every aspect of individual and household economic well-being. The importance of understanding key concepts such as interest, debt management, savings strategies, and financial goal setting cannot be overstated. The insights gained from Unit 9 of the personal finance course have dramatically shifted my perspective on how to approach money management, emphasizing the significance of strategic planning and disciplined financial behaviors.

Historically, my financial habits were driven largely by necessity and immediate priorities rather than a structured, long-term plan. Spending decisions were often spontaneous, influenced by wants rather than needs, and shaped by social modeling rather than expert advice. Paying bills on time and saving small amounts for emergencies constituted my limited financial strategy. However, attending school and the increasing costs associated with higher education, especially in courses like MM 212, necessitated a reevaluation of these habits. These circumstances illuminated the importance of financial literacy and deliberate planning for financial security and growth.

Unit 9 elucidates the critical role of interest in personal finance, highlighting how it impacts both costs and gains. When borrowing, interest amplifies debt costs exponentially through factors like time, rate, and compounding effects. For instance, a mortgage loan for a $170,000 house over 30 years at prevailing interest rates can result in total payment exceeding $350,000, illustrating how interest significantly inflates the actual cost of homeownership (Bankrate.com, 2018). Conversely, interest earned on savings or investments—typically about 1-2% annually in savings accounts—accumulates gradually, emphasizing the importance of leveraging interest effectively.

The comparison between credit card interest and savings interest reveals the contrasting outcomes of debt accumulation versus wealth growth. A balance of $3,000 accruing nearly $450 in interest annually underscores how debt can grow rapidly if unmanaged (National Foundation of Debt Management, 2017). Recognizing this, I learned to evaluate loan offers critically—preferring shorter loan terms with lower interest rates and avoiding extended periods that incur more interest over time. For example, choosing a 48-month car loan at 0% interest over a 72-month loan at 1.8% results in lower total payments, illustrating the benefit of understanding and utilizing interest to minimize costs.

Furthermore, the power of compound interest was emphasized in Unit 9 as a key to wealth accumulation, contrasting with the expense of accruing interest on debt. Accelerating debt repayment, therefore, not only reduces the amount paid overall but also increases net savings. The shift from focusing solely on paying bills on time to prioritizing debt reduction embodies the core of disciplined financial management. This approach ensures that money is used efficiently—reducing liabilities and increasing assets—rather than merely maintaining current spending habits.

Another vital lesson pertains to prudent spending on large purchases and the importance of making informed choices. Smarter shopping, comparison of financing options, and eliminating unnecessary credit use are strategies that can significantly improve financial health. Instead of waiting for a generic goal like “having money left,” specific, measurable objectives—such as saving 10% of income each month—enable concrete tracking and achievement of personal financial milestones. This shift towards goal-oriented planning fosters financial stability and progress.

Reflecting on past financial mistakes, I realize how experiential learning and formal education through this course have provided valuable insights. Previously, my financial stress was sporadic, often stemming from lack of planning or understanding of interest’s implications. The knowledge gained from Unit 9 underscores the importance of structured goal setting, strategic debt management, and the efficacious use of interest. Applying these principles makes managing money more manageable and less daunting, fostering a proactive rather than reactive approach to personal finance.

References

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• National Foundation for Debt Management. (2017). Debt calculator. Retrieved from https://www.nfdm.org
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