Monday, March 17, 2008

Personal Finance to Avoid Crippling Deficits and Bad Credit Scores

What is Personal Finance?

Though literally speaking, personal finance may mean arranging finance to meet your personal needs, personal finance is the implementation of the rules of financial economics in making personal financial decisions. It takes into account the sources of income or finance including mortgage loans, channels of expenditure, savings for emergencies, old age, payday payments and so on. Personal finance includes keeping income records, budgeting based on those records, preparing and net worth statements, credits, savings, investments, estate planning, insurance, taxes and so on.

Origin and the History of Personal Finance

The concept of personal finance and its management owes its origin in the hoary past when there were no hard currencies to quantify income, purchases and sales. Earnings were received in commodities and the same were exchanged in buying, selling and meeting personal needs. People were advised to look about their personal finance by making hay while the sun shone and store grains for the rainy seasons.

After the introduction of currency, services and products started being exchanged with money. Since carrying large amounts of even paper money is both cumbersome and insecure, we now have the plastic money called Easy Auto Credit.

The Origin of the Credit Card

The origin of credit cards, however, has a different story. It was not initially introduced as a convenient and securer substitute for carrying large amounts of money, though this advantage came about as a natural corollary. Credit cards, in their earlier avatar as dog-tag style metal plates appeared in the United States just before the beginning of First World War. They were introduced by the department stores for their favorite customers. Later on gas credit cards were issued for automobiles that could be used all over the country. One reason for the explosion of the credit card was the increased mobility of an average person. Credit cards and the easy mobility mutually promoted each other. A gas merchant in California would hesitate to accept a personal check from a customer but would willingly take an American Express or MasterCard.

Diners Club Cards

Nineteen fifties brought in Diners Club Cards. The Diner Club cards were introduced by Francis McNamara, an operator of a small loan company. He issued credit cards made of cardboard. It bore the holder's name and account number on the front and a list of 28 restaurants and Manhattan nightspots where his credit cards could be used. He charged an annual fee of five dollars. Later on he expanded this network of cards to the national level and covered restaurants, hotels and air travel expenses. In 1951, Franklin National Bank of New York too entered into market with a credit card that could be used to buy a variety of merchandise. Other banks notably the Bank of America in San Francisco joined the fray with its BankAmericard which later evolved into its present day Visa Card. Visa was followed by the Master Card of today. The credit card business exploded exponentially when by the end of 1960s many banks started mailing out credit cards to anyone with a name and an address with a good and even bad credit. The explosive proliferation of credit cards and the easy availability of finance have created more urgent need to regulate the personal finance than ever before.