A, B, C's Of Personal Finance
Manage Your Household Finances
To manage your personal finances effectively, you need to take a look at three basic things. Have you been acquiring assets? Do you know how to make a budget? And, is your credit rating where it should be? These are key factors in gaining wealth and each item will be looked at in detail.
We all work hard to make good money but it is important to know how to hold on to that money and even make it grow. If you are just living from check to check or can't even make ends meet, these tips should help you to get in control of your finances and make them work for you. It will require a little discipline at first but once you start seeing the results, it will become easier.
A. Acquiring Assets
You must have them! There are three major assets that should be included in everyone's portfolio.
1. Real Estate: Buying real estate right can still be your greatest asset. Not only is it where you nest and find comfort but it can provide a nest egg when you are ready to downsize and sell. The key is being careful with how much you are buying when the market is at its peak and being prepared to purchase at a downturn in the market. Think about how long you plan on living in a house to determine when the best time to buy would be. It may be better to rent for short terms until you are ready to settle in an area.
2. Cash On Hand: You should roughly have about three months worth of income in a savings account set aside for emergencies. I like to use our savings for things like vacations or non-budget items and then work to get it built back up to that three month level.
3. Investments: A good portfolio of investments for retirement is a must. Mutual funds are a great way to go since there is a lower risk of losing money than owning one particular stock. Once you have a good portfolio of mutual funds established, you may want to play around a little with the stock market. Start with a small investment in stocks and seek the advice of a financial planner to get a good feel for how the market works.
If you have the benefit of a 401K with your employer, take advantage of it! Any employer investment matches help to grow the account very quickly, especially if you can contribute the maximum amount.
B. Budget Money
Prepare a budget that takes into account every single monthly expense. Make sure to include an amount for saving and for tithing and stick to it. If you don't know how to make a budget, there are some great software programs, like Quicken, that can help you get started.
As you keep track of what you are spending each month on discretionary items like groceries and entertainment, you may find that you need to make some adjustments. Don't just up your budget amount if you are consistently exceeding what you want to spend in these areas. Look for ways to cut costs.
A lot of money can be saved grocery shopping by just shopping the deals. You may have to change your menu for the week but it is well worth it. Coupons can also help with the grocery bill if you absolutely have to have a certain item.
C. Credit History
Establish good credit history. Having good credit affords you the ability to secure loans, if you need to, at a good interest rate. You also will be able to get lower rates on insurance and have the ability to take advantage of a credit card with rewards.
The way to establish good credit is to make timely payments on your house or rent or any other loans that you have. If you don't have a credit card now, you might want to get just one to establish a good record. Use it for things that you can afford and then pay the balance in full each month.
Establishing credit is one thing. Falling into the credit pit is another. Credit card offers are constantly being thrown at us in the mail. Every retail store has it's own card. It's even pretty easy to get a car loan with bad credit - you just get a very high interest rate.
Once you get yourself so far into debt, it is almost impossibe to get out. Interest just continues to compound and you become a slave to the credit companies. Don't let this happen to you. This will keep you from all your financial goals and freedom.
Final Note - Financial Planning Tips
Have goals. Plan where you want to be financially and write it down. This will help you to stay focused. If you write down that you want to save $_______ a year, you will be surprised at how close you come to that figure.
Staying focused on how much you want to save or what investment you want to buy will keep you from wanting to spend your money foolishly. You will get excited about finding ways to cut costs. It will actually become almost like a game of "look how much money I saved!"
It's never too early to start planning for retirement. The sooner you start, the less you have to put away each year to have a substantial amount in your golden years.
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