About Us
Financial Advice For Beginners is a website that offers free financial advice on topics such as investing, insurance, how to become wealthy, budgeting, debt, and frugal living ideas. We regularly add new content, so check back often.
Our goal is to help you get started on the road to wealth.We sincerely hope you find this book helpful!
Please feel free to forward copies of this book to anyone you think may benefit from it.
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http://www.financial-advice-for-beginners.com/contact.html
Good Fortune to You,
Financial Advice For Beginners
http://www.financial-advice-for-beginners.com
Copyright © www.financial-advice-for-beginners.com Content was edited by www.editquest.com. You are free to redistribute this e-book as long as the document is unchanged and it is provided free of charge.
Step 1 – Protect Yourself and Your Family First
6
1.1 Build a Solid Foundation For Your Financial House
6
1.2 How to Save Money on the Protection You Must6Have
1.4 Make Sure You Get the Right Type of Insurance
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1.5 Get the Right Amount of Insurance
12
1.6 Action Items
12
Step 2 - Manage Your Money Flow
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Step 3 - Get Yourself Out of Debt
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3.1 Get Out of Debt Using a Consolidation Loan
18
3.2 Get Out of Debt Using the Snowball Method
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3.3 Get Out of Debt by Paying a Higher Interest Rate
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3.4 Get Out of Debt With the Help of Credit Counseling
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3.5 Get Out of Debt With Bankruptcy (if necessary)
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3.6 Action Items
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Step 4 - Start Accumulating Wealth
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4.1 Know What Your Goals Are
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5.2 Two Basic Ways to Become Wealthy
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5.3 Ideas To Get You Started
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5.4 Build Multiple Streams of Passive Income
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If you are struggling with debt, having trouble managing your money, or just aren't making enough money, you're reading the right book!
My intent with this book is that it will be a guide for you to get your finances on track as simply and easily as possible. This book isn't intended to be a detailed manual on complex financial subjects. It is simply meant to help you through the initial steps of gaining control of your finances and to show you ways of increasing your income.
I strongly suggest you follow this book in the order it is written. The concepts I'll discuss will help you build your “financial house.” And just like any new project, it's always best to start with a good foundation and work your way up.
I sincerely hope you find this information helpful. As always, I welcome your questions and comments. You can reach me by using the comment form on our website: http://www.financialadvice-for-beginners.com/contact.html.
Good Fortune to You, Financial Advice For BeginnersThe first step in building your financial house is to start with a solid foundation. You want a foundation that will hold your house up when it gets battered by the bad weather of life. So what type of material do you need for your foundation?
The answer is insurance. In simple terms, insurance is meant to manage future financial risk. It can help protect you from the financial risks associated with potential health problems, loss of a loved one (and the income they may have brought into the household), car accidents, fires, theft, etc.
This is why I suggest building your financial house on a base of insurance. You will be better protected financially from the unexpected and potentially costly things that can happen in life.
1.2 How to Save Money on the Protection You Must HaveSome types of protection, like car or home insurance, are required in many locations. While having this insurance is a good thing, there is no sense in overpaying for the coverage you are buying.
To help you reduce your costs for home and car insurance, you can apply these ideas:Always get multiple quotes: Even if you think you have a great price right now, it's worth spending 10 to 15 minutes getting comparison quotes. I have often seen this save people hundreds of dollars a year. A great website you can use to get multiple quotes with no obligation to buy is Hometown (Canadian? Use this one instead).
Raise Your Deductibles: A deductible is the amount you have to pay out of your pocket if you file an insurance claim. For example, say you have a repair that will cost $2,500 and your insurance policy has a deductible of $500. You will have to pay the first $500 of any claim, and your insurance company will cover the rest. By increasing your deductible, you can usually save money on your insurance premiums, since the company will not have to pay as much toward your claims.
Ask What Discounts Are Available: Sometimes you can get a discount on your insurance if you have a college degree or you belong to certain groups or unions. Be sure to ask your insurance provider to see if they offer anything that might help get your premiums reduced.
You can find more ways to save money on insurance in the insurance section of www.financial-advice-for-beginners.com.The insurance almost everybody should have is life insurance. Unfortunately, the majority of people either do not have life insurance at all or do not have enough coverage.
The main purpose of life insurance is income protection for your family. Losing a loved one is always difficult. But if that loved one was also contributing to the household income, that income is also lost when they pass away. In many cases, the loss of that income can be financially devastating for a family.
Insurance can never replace a loved one, but by ensuring you have enough life insurance coverage, you can be certain that your family will not have to struggle financially if income is unexpectedly lost. With proper insurance in place, you can put the risk and worry behind you, and get on with enjoying your life.
1.4 Make Sure You Get the Right Type of InsuranceThere are two basic types of life insurance — that is, permanent life insurance and term life insurance. You want only one of these types of life insurance; let me show you why.
Permanent Life InsuranceThe first type is called permanent life insurance. It's name is fitting because this type of life insurance stays in effect until you pass away or you stop paying the premiums to maintain the insurance policy.
Most of these types of insurance policies also have various types of savings accounts tied in with them.The three most common types of permanent life insurance are whole life, universal life, and variable life.
At first glance, having a life insurance policy that is in effect until you pass away and getting some savings built up at the same time sounds great. But here are some general reasons why I recommend staying away from any type of permanent life insurance policy.
High costsMost permanent life insurance policies are quite costly for very little insurance coverage.
High service fees
Insurance companies and agents make a lot of money when they sell you permanent life insurance. So it is in their best interest to try to sell you this type of insurance. All those profits and commissions are coming out of the service fees you pay with your monthly premiums.
Poor returns on your savingsDepending on the type of life insurance you buy, there are many investment options available. In many cases, if you compare the investment options within the life insurance policies to the comparable investment options available if you invested your money separately, the insurance investments usually do not perform nearly as well.
You are better off keeping your savings and investments separate from your life insurance.Possible loss of your savings or insurance
Again, depending on the type of permanent life insurance you buy, different rules could apply. Quite often when you pass away, any savings you had in your life insurance policy are lost. The savings you have accumulated are not always paid out to your beneficiary. The insurance company often keeps that money for themselves.
On the other hand, whatever savings you take from your policy will often reduce your coverage by that amount.If you have permanent life insurance now, you can check what your policy offers by looking for the death benefit amount showing in your policy. It's usually noted on the first two to three pages. Or you could call your insurance agent or company and ask them directly. See if you get a straight answer from them.
You may have to borrow your own moneyThis is another concern with the savings portion of permanent life insurance. With many policies, if you would like to use some of your savings for something like a home improvement project, you may have to borrow your own money and pay interest on it until you pay it back in full.
To help illustrate this, imagine having a savings account at the bank that you have been putting money into faithfully for many years. One day, you decide to use some of that money to pay for home renovations. You go to the bank and fill out the withdrawal slip. When you give it to the teller, they say that they would be happy to give you your own money, but you'll be charged 8% interest on it until you pay it back in full. It sounds crazy, but many permanent life insurance policies work this way.
You can learn more about permanent life insurance at www.financial-advice-for-beginners.com.Term Life Insurance
Term is the best life insurance you can buy. Term insurance is purchased for a specific period of time and is the cheapest type of life insurance.
The most commonly available terms are 1, 5, 10, 15, 20, 25, and 30 years. And unlike permanent insurance, term insurance has no savings associated with the policy.
Since you are paying purely for life insurance (not life insurance and savings), you can generally buy a lot of insurance for relatively little money compared to permanent life insurance. This is a good thing because most people are either underinsured or they don’t have any life insurance at all because of cost. By being more affordable, term insurance helps you obtain enough protection to take care of your family should something unexpected happen.
Invest the differenceWith the money you save buying term insurance instead of permanent insurance you can also start your own separate savings or investment plan. By keeping your investments separate from your insurance, you can access your own money without having to borrow it or cancel your life insurance coverage. You’ll also have full control over how your money is invested instead of being limited to what the insurance company offers.
This is approach is called buying term and investing the difference. If you invest long enough, you will build up enough savings to become self-insured. Being self-insured means having enough savings and investments to take care of your family if you pass away. Another benefit to this approach is that once you have enough savings to take care of your family should something happen, you don’t need life insurance anymore. You can cancel your policy and save yourself from having to pay those life insurance premiums for the rest of your life.
You can learn more about term life insurance at www.financialadvice-for-beginners.comFiguring out how much life insurance you need can be a difficult task. You need to estimate how much final expenses will be, how much additional income your family will need each year, and how long they will need this money. You may even want to have enough insurance coverage to help fund your children's education.
Fortunately, there are tools available to help you determine how much insurance you should have.Financial Advice For Beginners has a free life insurance calculator you can use. Just click the link below or copy and paste the address into your web browser's address bar:
http://www.financial-advice-for-beginners.com/insurance/lifeinsurance/life-insurance-calculator.htmlOnce you know how much insurance you need, shop around to get the best rates. The easiest way is to do it online. Fill out one form and will get you several free personalized quotes. It saves you the hassle of having to shop around yourself. Go to HometownQuotes to get free estimates on life insurance. (Canadian? Use Kanetix instead.)
1.6 Action Items1. Use our life insurance calculator to figure out how much life insurance you need. The address is: http://www.financial-advice-for
beginners.com/insurance/life-insurance/life-insurancecalculator.html
2. Go to HometownQuotes (Canadian? Use Kanetix instead) and fill out the form to request multiple quotes for term life insurance.
Make sure you pick a length of term that will cover you until the time you expect your children will be out on their own, you expect to be debt free, and/or you expect to have enough savings to take care of your family should something happen to you. Typically, this is about 20 to 30 years.
3. Once you have your quotes, pick the one that provides the amount of coverage you need for the most competetive price.
4. If you plan on replacing an existing permanent life insurance policy with term insurance to save yourself money, do not cancel your permanent insurance until you have received your new term insurance policy. You should keep your existing insurance in effect until you have your new policy in hand. This way you will continue to have coverage until your new policy arrives.
I invite you to learn more about insurance in the insurance section of www.financial-advice-for-beginners.com.Managing your money flow is the second step of building your financial house. It is like building the frame that the rest of the home will be built around.
The concept of managing your money flow is basically making sure that your inflow of cash is less than your outflow of cash. This process is called budgeting. When you create and follow a budget, you are living within your current means and you will avoid accumulating new debt.
When you take the time to create and follow a budget, you begin to see where your money goes each month. Armed with that knowledge you can cut back on some of those wasteful spending habits and free up money to start moving towards your goals.
2.1 Managing Your Money Flow Will Help You Reach Your Financial GoalsWhen you follow a budget, you can allocate money to reaching your financial goals. Maybe you want to save for things like retirement or a downpayment on a house. Perhaps you want to start saving money to start that business you've been dreaming of. When you follow a budget, you have a plan to get where you want to go. When you have a goal and plan to reach that goal, your chances of getting there are exponentially increased.
2.2 Managing Your Money Flow Will Prepare You for Future WealthIf you are always running out of money with your current income, chances are that you will have the same problem even if you earn more. Statistically, the more money you earn, the more money you'll spend. This is called Parkinson's Law. If you do not learn to manage what you have now, earning more money will not solve the problem.
Don't be fooled by appearances. Many of those high income earners are broke. All of their income is going to pay for their big mortgage, the credit card bills, and the car loans. They are just broke at a different level.
2.3 Managing Your Money Flow Will Teach You DisciplineWealthy people understand the importance of managing their money. They exercise self-discipline and they save up for purchases and earn interest on their savings while they do it. Broke people tend to go for instant gratification and buy things on credit. Often, whatever they buy ends up costing them twice as much by the time they finish paying for the credit card bill.
In the long run, saving up for purchases will actually allow you to buy twice as much stuff compared to buying with credit. Alternatively, you could have the same amount of stuff, plus build up a big investment account on the side with all the money you save by not paying interest on debt.
2.4 Managing Your Money Flow: ConclusionOver the years of working in the financial industry I have actually met a lot of low income earners that had higher net worths than many doctors and lawyers. This is simply because they managed their money well and allocated a portion each month to go into long-term savings or investments.
Budgeting is the basic building block of financial success. When you can manage your money successfully, you can allocate money to reach future financial goals. You will also be learning important money habits that will serve you well for your entire life, no matter how much you are earning.
To help you get started, I have created a budgeting spreadsheet that you can download for free at:
http://www.financial-advice-for
beginners.com/budgeting/personal-budget-worksheet.html
It's all set up for you to project and track each month's income and expenses. Plus, it will automatically total your numbers for the entire year and present the data as a graph so you can see where your money is going.
If you would rather not be bothered with having to manually track everything yourself, check out the Quicken Personal Finance products.
With their programs you can automate a lot of the manual tracking you have to do with the traditional budgeting spreadsheets. It will save you time and provide you with the information you need to manage your money well.
2.5 Action Items1. Start managing your money flow by using a spreadsheet or automated software. Figure out how much money you have coming in each month and allocate it to your needs and goals.
2. Start tracking where your money is going and look for areas where you can reduce costs. Some easy ones are buying lunches and coffee. Cutting out five coffees each week could save you around $50 a month.
You can download a free budgeting spreadsheet from our website at:
http://www.financial-advice-for
beginners.com/budgeting/personal-budget-worksheet.html
You can learn more about managing your money at www.financialadvice-for-beginners.com
Getting out of debt is the next step in building your financial house. Paying off debt is similar to adding the guts of your house such as heating, plumbing, and electrical lines. This step allows you to live in relative comfort and ease.
Debts can cost you a lot of money in interest payments and they hamper your ability to live life to the fullest. Once you are debtfree you will have freed up all that money that was going toward your monthly payments. You can look forward to doing more things or you can start putting money away to move you toward other financial goals such as buying a new home, taking a trip, or building up a healthy retirement account.
If you do not change anything and continue to make minimum monthly payments on your debts, you will eventually get them paid off. This assumes that you do not accumulate any new debts along the way. However, there are more efficient ways of getting out of debt that will not cost you any extra money.
Here are five techniques you can choose from to help you eliminate the shackles of debt from your financial life.3.1 Get Out of Debt Using a Consolidation Loan
A consolidation loan may be able to help you if you are still able to make payments and your credit rating is in relatively good standing. A consolidation loan is used to pay off all or a portion of your existing debts. Then you will only need to make one monthly payment on the consolidation loan, which is often less than what you were paying before.
With consolidation loans you need to be careful about what you do with the money you just freed up each month. Since the payment on a consolidation loan is often lower than your previous combined debt payments, you will likely have more money available to you.
Financial institutions and banks know that, statistically, if they are able to free up money for someone, usually that person will end up aquiring new debts with this freed income.
If you think about it, what would most people do with, say, $400 extra a month? Often, they will use it to get another loan for a new car, boat, or something else they would love to have. And who usually provides that new loan? Yup, the same bank that did the consolidation loan!
Unless you need that additional money to pay for basic necces
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