So knowing how to manage your money is vital. There are a lot of decisions to make (student loans, buying a car, buying a house, how many pairs of shoes you can own without being obscene) which will rely on your having a basic understanding of your personal finances. Money can be cheap or expensive, depending on what you know about how to use it. For example, if you charge those Manolo Blahnik shoes – the ones you know perfectly well you can’t afford – to your credit card and don’t pay the bill in full when it arrives in the mail, the shoes become a lot more expensive than the original number that was on the price tag because of the interest the credit company charges.

I know many of you think finance is boring and that you are not good at math. But understanding the basic connects of money management is crucial – just look at the mess the economy is in. So please make an effort – I promise it will be worth it. (Especially when you are able to afford whatever it is you want without having to stress about when the credit bill is coming).

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She knew she was overspending and if she didn’t start cutting back on expenses she would have to go back to work. Unfortunately, due to her limited skill set and education, that meant a return to the scullery.

She needed her fairy godmother to wave her magic wand and fix it all. After all, that woman could do anything. Then reality hit. Her fairy godmother had been cut in the last round of palace lay-offs. She was going to have to go it alone.

Rather than panic, she decided to do some homework and some financial planning. To begin she re-read some of the post from So Many Shoes – especially the ones on credit cards, interest rates and debt. She also turned to No Regrets for savings ideas. She vowed to get her financial life under control and to check back more often.

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Basically, banks and mortgage companies lent a lot of people money they probably shouldn’t have. In turn, people invested in properties which cost more than they could afford. The idea, was that property values would continue to increase (and, why not, they had been for years) and everyone would make money. Everyone forgot that what goes up also comes down.

Fashionista’s already knew this – hemlines fluctuate between micro-mini and trains depending on designer’s collective will. The economy, like skirt lengths, has proved subject to the same kind of whims. In fact, in the 1920s, the economist George Taylor conceived the hemline index, finding that skirts got longer as the economy slowed. Lately, there’s been talk of a haircut index, with short locks signaling a declining economy. Bob’s have been all the rage – perhaps Katie, Posh and Gwyneth are onto something?

The next part of the crunch will be credit cards. A credit card is a small, but powerful, piece of plastic. It allows you to buy something now, today, this minute, when you want it, on credit; meaning you don’t have to pay until the bill comes. Unless you pay the bill in full each month, in return for letting you borrow money credit card companies charge you a fee. These charges are interest and the amount of interest is called the Annual Percentage Rate (or APR). Since there really is no such thing as a free lunch (or dinner…often someone wants SOMETHING for it), credit card companies charge a big fee for letting you borrow money from them.

In the coming weeks and months credit card companies may raise these rates – which means, if you do not pay your bill in full, it will cost you more to use your credit cards. They will also certainly make it harder to get a credit card, transfer balances from one card to another and, if you have a line of credit (an amount of money you are pre-approved to borrow at any time) they may reduce the amount of the line and thus how much you can borrow.

The very best thing you can do for yourself? Pay off any outstanding credit card debt you have as quickly as you can. If that means putting your cards away (out of sight is, after all, out of mind) then do so. The reason for this is so that you have as clean a slate as possible – that way when you need your credit card you will be able to use it.

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