Lesson 1
The Facts of Life

Welcome to the real world of personal finance and the responsibility that goes with it. Bundle up because it can be cold and lonely out there when you are on your own.

This lesson chapter provides an overview of credit and debt issues that all adults face. It points out many of the pit-falls and hazards that significantly affect people's lives, either temporarily or permanently.

When it comes to money, life's lessons can be harsh and unforgiving but they don't have to be. You have choices to make. How well you make those choices will determine whether you live the good life or you live a life of constant worry. You can have money in savings or you can have serious money problems.

The unfortunate reality is that too many people choose the difficult path. They spend more money than they make. They give in to the urge of impulse buying. They fail to plan for the inevitable emergency. The result is they often find themselves only a couple of paychecks away from the homeless shelter. Rarely does it have to be that way. Most financial problems can be avoided in the first place, or resolved when they do crop up.

Life doesn't have to be gray, like it is for those with constant money worries. Life can and should be bright, colorful and enjoyable.

To have a chance to live a life free of excessive money worries, there are at least 20 areas of personal money management that you need to master.

• Live within your means. Don't spend more than you make. Don't take on more debt than you can afford to repay even if someone is willing to lend you the money.
• Budget your money. Budgets are not only for older folks or the young. Budgets are for everyone. Period. If you don't use a budget, you're missing the single most important financial tool available to you.
• Anticipate your expenses. You have to know what bills are coming due this month and next, and you have to know how you are going to pay them.
• Save a little every payday and learn how to invest what you save. If you don't see the money, you won't miss it. With savings, you will be able to get through that inevitable emergency. If you don't invest your savings, you won't have much of a nest egg when you need it.
• Understand how credit and debt work, and determine how much debt you can comfortably repay. Credit is the amount of money that is available to you through lenders; debt is simply the amount of credit you are using at any given time. Credit and debt are like opposite ends of that childhood teeter-totter. Credit is on one end; debt is on the other. You can have high (large) amounts of credit and low (small) amounts of debt, or it can be the other way around. When you use all of your credit, your available credit is zero; your debt load is maxed out.