Personal finance of everyone are important in achieving personal goals and to obtain success. With this in mind each person should look after his personal finances, but this is not the case when considering the few people who haven’t a personal budget, or those who live beyond their means without pay no attention to their personal finances. When should you begin to manage your personal finances and why?
Franco Modigliani, Nobel Laureate in Economics in 1985 developed the model life cycle in which he analyzes the consumer behavior of an individual during his life. It takes into account in its analysis of changes in income and savings of the individual. He proceeds to the study of several facets of personal finance economic agents during different stages of their lives. The author divides the period of life into two parts which is the activity and inactivity or retirement. The period of activity which includes both sides reveals changes in personal finances of individuals. During the first phase, their personal finances are not very good because their consumption is very high, sometimes exceeding their income.
They are using consumer credit through credit cards and have no heritage. During the second phase people borrow to purchase consumer goods and investment. Indeed, they accept credits for the purchase of cars, credits for the purchase of real estate; credit cards…At that time, personal finances are beginning to improve as savings becomes positive and important heritage until the end of their life. This is due to the decrease in consumer spending since their children can grow up and leave the family roof and have less recourse to credit. During the period of inactivity, personal finance begins to deteriorate as their incomes fall and they want to maintain the same standard of living. They reduce their savings in order to satisfy a higher consumption, and income declines. To maintain their previous level of consumption, they draw on their savings; sometimes tend to dispose of their heritage.
This shows us the importance of dealing with finances during our youth, because it is the best time of our life because during this period we have the opportunity to influence our personal finances through of our revenues from our activities. How positively influence our heritage, our savings, and our brief finances?