It’s easy to get caught up in the thinking that we make personal finance decisions just for the sake of managing out money. The fact is, though, that every decision we make about personal finance can ripple through the rest of our lives.

Just A Few Ripples

It’s hard to comprehend how important even a little thing like deciding to save up for a large purchase, rather using a credit card can affect all of the rest of your finances. But there are plenty of situations where such a decision can have a huge impact: having more credit available on your card, along with a few extra dollars in your bank account, can make all the difference in the world if something happens to your car that your insurance doesn’t cover.

And decisions affecting your credit in particular can affect whether or not an employer will hire you or a landlord will rent to you. It may seem like your credit score’s importance is overblown — after all, you can effectively eliminate your debt if you’re willing to declare bankruptcy. But with even employers examining the credit reports of the candidates for each job, such a move can be disaster for your job applications (as well as your ability to get a credit card) for the next seven years.

Keep Those Ripples Under Control

It isn’t possible to prevent your personal finance decisions from affecting the rest of your life: after all, they’re called personal for a reason. But you can create a cushion so that your decisions don’t affect your life beyond a level that you can handle. While simply making good financial decisions seems like an easy answer to the issue, everyone makes the occasional mistake.

Instead, the best protection you can have is a good emergency fund. When you have a solid amount of savings in case of contingencies, you have more room to handle ripples. Even if something occurs that isn’t the result of something you specifically did — such as a car accident or a layoff — having an emergency fund will allow you to approach the situation in such a way that your finances don’t compound the original issue.

In addition to an emergency fund, insurance policies can provide further protection. It can take a little more careful consideration than you might expect to find the right insurance policies, though. Choosing a policy that doesn’t work well with your current financial situation can create more than few ripples on its own. Carefully weighing factors, like what a reasonable deductible might be, is absolutely necessary. Because everyone’s financial situation is different, it’s probably a good idea to seek out professional help in making sure that you find the right insurance policy.

Rocking The Boat

If you’ve got your finances under control, a ripple isn’t going to do much more than rock your boat. Moving forward in improving your overall financial situation is always a good idea — even if it rocks the boat a little.

Popularity: 11% [?]

Last week, the government reported that Americans saved 2.9 percent of their after-tax incomes during the last quarter of 2008. Considering that just a year ago, we were saving less than 1 percent, the current rate is almost unbelievable.

All that money that is being ’saved’ isn’t necessarily going into a bank account. Money put towards debt reduction is actually counted towards savings. Robert Frank, an economist at Cornell University, told AP, “For economic purposes, paying off debt and saving are the same,” he said. “Incurring debt is negative savings; paying down debt is savings.” Frank believes that the current trend towards savings is actually a long-term behavioral shift: as a culture, we’re going to start value saving or spending much more than we’ve seen in the past few decades.

The trend towards savings is only growing right now, according to many economists. It’s not out of the question that the savings rate could rise to 6 percent — or even higher — in the next few years. I know that I’m working hard on getting at least a few more dollars into savings — and I’m pretty sure that a lot of people share my mindset these days. Unfortunately, economists think that approach is bad for the economy. Because we aren’t out there turning the cogs of commerce with what amounts to a substantial chunk of what used to be spending money, both the retail and manufacturing industries are taking major hits. If we aren’t out there spending money, the recession gets deeper. If the recession gets deeper, we save more and spend less. The economy is caught in a Catch-22.

The current economic situation isn’t the end of the world, though. The fact that many Americans are saving — are able to save — shows that there really is a light at the end of the tunnel. Yes, the economy is not in great shape right now and, as Americans do the right thing for their own finances, there’s a chance that the recession can get deeper still. But saving and paying down debt remain the right things to do, and they offer us a chance to come through the nation’s economic troubles on a more solid footing of our own.

Through saving and eliminating debt, we have an opportunity to build a better economic future, even if the economic present isn’t particularly wonderful. The past several decades saw record levels of spending — unsustainable spending — which now must be resolved. That means a recession. But when the recession is over, we’ll be more comfortable with our finances. It’s just a matter of getting through the current economic troubles: doing that is just a matter of saving and getting out of debt. Despite what the government might want, we need to take care of our personal finances now. It might not hurt if the government did the same — as much as cutting spending will hurt, it could provide a more long-term solution than throwing money at a recession economy.

Popularity: 9% [?]

Home Equity Lines of Credit (HELOC) are sometimes referred to as ‘second mortgages,’ but this isn’t necessarily true. These loans act much the same as a credit card. HELOCs are lines of credit with a dollar limit (determined by your homes worth and how much of it you own) which you can draw from whenever you want, and for any amount you want (there are some limitations, but let’s keep it general for now). Usually these loans are used for home improvements or other costly maintenance, but there really are no rules on how to use the money, as long as you make your monthly payments. Let’s take a look at some reasons for taking out and using a HELOC.

Don’t Move, Improve!
Several homeowners are turning to large renovations on their existing homes rather than moving to a new one. With the market in the state it’s in, selling your home is no longer a smart option. If you purchased your home in recent years, it’s very likely that if you sold it today you would be losing money. Therefore people are using the equity in their homes to renovate and make them better. Between additions, upgrades, and remodels, people are essentially building a new home from their old one, instead of dealing with the hassle of buying and selling. There’s another reason people are putting down the ‘for sale’ sign and picking up a hammer; renovations build value. The more updated and expanded your home is, the more its value increases. So a few years down the road when you do sell, you’ll make more in profit than you spent on renovation.

Money For The Lean Months
If you’re a seasonal worker or are self employed, a HELOC may be the way to make sure you don’t starve during your off months. Perhaps you have a landscaping business that is very productive and employs many people. But every year when the snowy season comes, plowing roads just doesn’t pay the bills. Not to mention you don’t want to lose all your employees because you can’t pay them as much as they earned during the summer. If you use money from a home equity loan to bolster your accounts during those times, and pay it back during your busy months, you can even out your expenses and maintain a steady flow of cash all year.

Make Credit Cards Go Away
High interest credit cards can be the thorn in your side that just won’t go away. With a HELOC, you can pay off your credit card and essentially ‘transfer’ the balance to your new loan. The interest on home equity loans is significantly less than many credit cards. Average rates for high interest cards can be anywhere from 20% to 30%, while HELOCs are currently between 4% and 6%. A scenario (warning, math ahead!):

Say you have a $15,000 balance on a 20% credit card, and planned on paying it off in 5 years. If you paid off that card with a 5% home equity loan, and paid it down within the same 5 years, you’d save $6,860.40 in interest! Not to mention going from a monthly payment of $397.41 to a much more manageable $283.07. Sounds good to me!

Popularity: 20% [?]

Let’s face it, our money is not looking good right now. Whispers of recession and reports of a weak dollar translate into higher gas prices and lower home sales. Investing in the stock market is a scary and dangerous endeavor, particularly for people who aren’t very wealthy. Some of us may have scoffed at our grandparents, how they scrimped and saved and hid their money under mattresses to achieve their financial goals. Now many of us are starting to see the wisdom of a piggy bank on the dresser. The problem, of course, is that we aren’t a country of savers, we’re a country of instant gratifiers. We want the latest greatest of the biggest best, and damn the consequences. It’s the American Way.

Now we’re reaping what we’ve sown. Debt is one of the major crises facing this nation, and irresponsible or ignorant spending is to blame. How do we counteract this cancer of the economy? By holding off on that triplegrandemochafrappewhatever, and stowing away a few bucks for rainy days. But just putting spare change in a jar isn’t good enough these days. We’re far behind in the savings race, and we need every edge we can to catch up and build our wealth. How do we do it? Smart financial decisions, and the first smart decision is a savings account.

Possibly the simplest, and most overlooked method of building wealth is using the banking system to your advantage. Savings accounts have been around forever, and are still a solid way of putting some money aside. Here are some tips to make the most of your account:

• Save where you bank – It is a good idea to set up a savings account at the bank where you have your main checking account. Often banks will offer better rates or more attractive benefits to customers who have all their accounts with them. They aren’t as likely to do that for a customer who bounces around from bank to bank looking for the best deals.
• Don’t link your accounts – A savings account that links to your debit card is just asking to be tapped…don’t do it! You are your own worst enemy.
• Set up automatic transfers – When you receive your paycheck and deposit it in your checking account, have the bank automatically draft your checking for a certain amount and have it deposited into your savings. Personally, my direct deposit goes into my checking every other week. I set up a transfer to occur at the same time for $50. Essentially, I’m automatically saving money without even thinking about it.
• Go Online – Believe it or not, the best savings accounts are online. HSBC, ING Direct, and EmigrantDirect are all good examples that have extremely high interest rates. There are two catches however; you have to have an existing checking account at a physical, brick and mortar bank, and the interest rate is usually variable. As far as security goes they are usually very tight, so expect to have a lot of passwords. Here’s how it works: you sign up for an account online and enter your information. Then in order to fund the account, you have to provide your checking account information and sign/receive authorization via postal mail. The funds are then wired from your account (no fees) and deposited into the online account. And the best part? They’re FDIC insured, just like your local bank.

Popularity: 14% [?]