Lessons Learned in Finance

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Personal and professional lessons learned and insights gained from studying finance are directly applicable to many decisions in everyday life. From balancing a checkbook to putting a down payment on an apartment, saving for a home, buying one, refinancing one, and purchasing a car all are directly influenced by finance. Most insightful is the powerful nature of a credit score on the interest rate lenders are willing to offer. A as they relate to both individuals and businesses saves thousands of dollars in interest payments. This fact alone is reason to pay attention to the impact of finance on both personal and professional pursuits.

Over and above managing credit scores, a more insightful understanding of finance also makes both personal and professional lives has to do with managing income and expenses to a budget that is realistic and measurable. Where accounting provides the basic tools for managing the inflows and outflows of revenues relative to expenses, finance provides invaluable analytical tools for analyzing how and why there are variances relative to budgets and expense projections. This distinction of providing greater analytical insights into spending has direct implications on both a persons’ professional and personal life. Of the many , techniques and metrics, the liquidity ratio, current ratio, and measures of liabilities relative to assets are all critical for managing both professional and private lives’ financial conditions. While few people use ratio analysis to analyze their own financial condition, many do the rough approximation of how they are doing on key measures of to their goals and objectives.

The structuring of debt and its implications on cash flows, the structuring of payback periods, the use of fixed vs. adjustable-based loans, the use of accelerated loans, and conversely, the use of annuities, compound saving strategies, asset appreciation and portfolio planning all are based on finance. For the small business owner balancing these many strategies the need to trim down liabilities and while maintaining and growing annuity from customers is critical, in fact the lifeblood of their businesses. In many respects this same balance of managing liabilities and assets needs to pervade individual financing decisions. This goes beyond simply staying within budget; it requires the use of insightful tools and analytical techniques for managing to financial goals and objectives.

The pervasive use of financial analysis tools and key measures of risk vs. potential returns for managing personal and professional investments is invaluable. Quantifying risk and its implications on investment decisions through beta scores, using financial analysis tools to plan retirement, knowing what a 401(k) is and how it works relative to the 529 Plan, versus a B. Keogh Plan and IRA are all for anyone working and saving for retirement today. Getting an education in financial tools, techniques and approaches to analysis is also critical in evaluating everything from job offers and potential relocation packages to whether it makes sense to start a new business, however small it is initially. The bottom line is that an education in finance is absolutely necessary for navigating both personal and professional financial decisions.