Personal finance is part of our life. This is why one of the greatest way to learn personal finance is by observing how others manage their money.  It has been a habit of mine to study and observe how others think about their money and how they manage the money. It is always great to learn from others experience.

Lately, more and more news about global economy crisis has been coming out and saying that we are in a big economy crisis that we never had  before. Finally, United States was finally declared in recession and it already started since last December 2007. In fact, every country in the world is having recession problem too.

It is a common sense that we should keep more cash on hands at this tough time. This is because cash is the king in down economy. But it seems like not everybody can understand the condition.

Last week, I found that one of my friend just bought a new car. This really makes me shock! No, she doesn’t really need this car because she already has 1 for her family. Furthermore, there are only 4 members in her family and her 2 children are below 12 years old. So 1 car is just enough for her whole family. But somehow she still buy the new car.

For the past 2 years, her income has been increasing persistently. She is running a book keeping small business which can generate some steady incomes for her. But I also can see that she has been buying a lot of things in the past 2 years. She is just like the typical people, make more money and buy more liabilities.

On the other hands, she has credit card debt and she has a bad credit because of it. She almost bankrupt due to these debts before. But she never learn the lesson as I can feel that she never thinks or plans to pay them off and increase her credit score. If you read my post about credit score, you will know that how important credit score is in our financial planning and on the road to getting wealthier.Therefore, we must control our credit score and keep it high.

If I was her, I would have maintain the same lifestyle and keep all the extra money generated from business properly. I will concentrate on 2 things. First, I will use that money to setup an emergency fund. Once I hit this goal, then I will concentrate on paying off the debt and increase my credit score. Once my credit score is increased, I can talk to the bank and consolidate the debt to a lower interest rate loan. This is the common steps in personal finance. But my friend still cannot follow it even though she is good in accounting.

So do you think that people will change their spending habit? Will people become smarter in personal finance because of this financial disaster? I really doubt on this.

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