Good Debt...what are you?

It's nearly impossible to live debt-free, but why do we borrow money? Usually, it's because we don't have the money to purchase something we want or need. Acquiring some items through credit make sense, but a list of those that doesn't can easily fill the Library of Congress to the brim, and that is where most people get their debts out of hand.

Just what exactly is a good debt? Good debts are debts used for acquisitions or purchases that can increase your net worth over time or those that should boost your earning potential. It can also be viewed as long term investment. Perfect examples of good debt are:

Education. This can definitely increase your potential to earn. So go ahead and take that student loan and make yourself the best moneymachine in town.

Home. In the long run, owning a home is cost-effective than renting. But make sure that you stay in it. Do not buy until you can stay in it for the next few years, though.

Businesses. If managed properly, this can increase your net worth tenfolds the debt and cost of borrowing.

Vehicle. It makes sense to acquire a car on credit if you plan to keep on driving the car long after the loan payments have stopped. Just be sure to shop for the best deals. It is extremely painful to keep on paying for something that has retired to the junkyard.

So before you hand over that plastic cash to Mr. Salesman, ask yourself if it will significantly increase your net worth...or not.

Why Can't You Manage Your Own Finances?

Humans were created equal, but not in the world of personal finance. While some or most are born into poverty, few were born into great wealth, and the rest of us somewhere in between.

While we cannot choose the camp to be born into, we need to figure out to make do with what we've got.

Here are several reasons why you can't manage your own finances:

1. Financial illiteracy.

We don't know how to manage our personal finances because in most cases we were never taught how to do so. Almost none of our high schools and colleges do not offer a single course to teach this vital skill. A study showed 'more than half of its respondents did not know how to calculate the minimum payment for debts and its application to principal balance'. Even licensed accountants have a hard time explaining the time value of money to client and would-be investor.

2. Blame it on the parents.

In many families, money is a taboo subject. Kids only hear about money during disagreements or as financial crisis is beginning to bubble. On the other hand, some well-meaning parents do pass on their money-management habits, good AND bad. In other cases, parents had the right approach but the kids go to the other extreme out of rebellion.

3. We read the wrong stuff.

In this day and age of Wikipedia, one cause of financial illiteracy is incorrect, biased and poor advice people get from seemingly reliable sources. You'll be surprised at the number of personal finance magazines spewing out information that caused actual and sizeable damage to its readers.

Now that we have outlined some of the basic reasons why you can't manage your own finances, it's time to plunge in to the world of financial planning.