As simple as it sounds, financial planning is really just a matter of using your common sense. For instance, why would you pay $20.00 when you could pay $10.00 for the same item or the same results?
I imagine that you work very hard to earn your money – so you need to make sure that your money is working hard for you in return.Money, when all is said and done, is a means to an end. You work to make money; you take that money and use it to make sure that you have a place to live, a car to drive, food to eat, and clothes to wear.
And with luck, you exchange that money for enjoying some of the finer things in life. Many people believe that money is made simply to spend. Your common sense should tell you, though that it’s wise not to spend all your money today.
If you are young, it is hard to imagine that you will reach a point in life when you can no longer work for your income. It may be a long way off, but that time will come, and you must be prepared for it. You cannot expect to start saving for retirement the year before you will need to retire!
The sooner you start saving and investing for your retirement, the better your retirement years will be. That should be a major goal for everyone! When you retire, you will start spending the money that you’ve worked all of your life to earn and save. With luck and planning, there will even be some or plenty left over to give your grandchildren or great grandchildren a good financial start.
Just because you make a lot of money, you don’t have to spend a lot of money. We would all like to live the lifestyle of the rich and famous, but not all of us have the means. Do you know what it really means to live like a millionaire? It means not living beyond what you can afford. It means saving for the future.
Look for ways to save money wherever you can. In fact, even if you consider yourself financially well off, you should still make it a habit to save money when you can. This is a great way to stay in good financial shape, and also a great way to get into great financial shape if you aren’t quite there yet.
Start with your household bills, such as utilities. Turn lights off, cut down on long distance calls, and use less water. If you make a concentrated effort, and really pay attention to your monthly bills, you will see a big difference in costs. Make a list of all the ways that you can reduce your utility payments and household costs.
Use coupons and take advantage of sales. If you need new bedroom furniture, don’t just rush out and buy it. Instead, look for liquidation sales, overstock sales, or furniture stores that are going out of business. You will find remarkable savings in this way. Use store coupons whenever you can. It takes a little time to clip them, but those small savings of a few cents here and there can really add up.
Make lifestyle changes that will make your healthier and richer. If you use tobacco or drink, think about how much money you spend on those habits. You must also include health care expenses that are related to those habits. If you look at the big picture, you will find that your unhealthy habits cost a lot more than you realize! Break those habits and you will not only become healthier, your bank balance will be healthier as well.
Don’t always buy the cheaper brand or version – it may cost you more money in the long run! On the other hand, sometimes buying off-brand items can be a real savings, especially when it comes to food items.
But sometimes, cheaper means lower quality. This can mean replacing items more often, which in the long run costs more money than just buying a higher quality item in the first place.
If you make a list of things that you commonly spend money on, and if you really think about it, you will find numerous ways to save money. Take those savings, and put them in a savings account, and you will be pleasantly surprised at how fast that balance grows!
Adopt the attitude that saving your money is as important as making money. There are many high earners who live a flashy lifestyle by going into debt up to their eyeballs. It’s a shame these 5-figure (monthly) income earners often don’t bring those 5 figures home at the end of the month due to horrible financial planning.
While savings is not all you need to know about personal finance, it’s a quick defense strategy you can implement almost instantly. Do the best you can with what you have. Remember the sage advice: “Pay yourself first.” (We’ll have more to say about this in subsequent sections.)
Life throws things at us when we least expect it. It may be an illness, a car accident, or even a lay-off from your job. When life throws you an unexpected curve, it’s likely to cost you money.
This is why you need an emergency fund. Everyone should have at least three to six months of living expenses in a savings account that is reasonably easy to get to.
Set a budget and determine how much you can put into a savings account. Until you have reached your savings goal of having three to six months of expenses in your savings account, save every extra dime that you can lay your hands on – even if this means not going out to a nice dinner or seeing a movie. Getting your emergency fund saved should be your highest priority.
Once you have your emergency fund, preferably in an interest bearing pass book savings account, make sure that you leave it alone. Remember, it is only for emergencies. Needing to buy a new dress for a date is not an emergency. Needing to pay for car repairs, however, is an emergency. Really think long and hard before dipping into your emergency fund!
When you must use your emergency fund, make sure that you replace the withdrawal as quickly as possible. This will again be your first priority until the fund is replenished. This may mean that you will have to really tighten your belt, and forgo the dinners and movies again – for a while. But when you have an emergency, you will be thankful that you did save the funds, and you will realize just how important doing so really was.
Your emergency savings should not be invested in the stock market or even a certificate of deposit. It needs to be readily accessible in a savings account or money market fund. If possible, get a debit card for that account, in the event that your emergency occurs outside of banking hours.
However, use caution, and put that debit card away – don’t use it unless there is an emergency!And that reminds me…
Credit cards are great! You can walk into a store and buy expensive clothes or gadgets, whip out your card, sign your name, and walk out without spending any money! What could be better? Then, thirty days later, the bill comes in the mail. As time goes on, the balance of that bill gets bigger and bigger – even though you are making the minimum monthly payments.
Before you know it, you owe thousands of dollars, your minimum monthly payment has risen to an unmanageable amount, and the credit card company is calling you daily about paying your bill. Your credit just became a nightmare.
Credit card companies work to make sure that you stay in debt. That’s their business model. As long as you are in debt to them, they are making money – and the more debt you have, the more money they make. They are not on your side. Sure, they made it easy to buy that new living room furniture. You have that fancy exercise equipment, and they helped you get it. But now, they want you to pay for it, with interest.
In spite of this, everyone needs one major credit card for a few good reasons. First, having a credit card and making your payments on time helps you establish credit. This way, when you go to buy your first home or automobile, you won’t have any problems getting financed.
The second reason you need a credit card is for emergencies. If your hot water heater bursts, not only will it need to be replaced immediately, you may also need to replace some carpeting. If you don’t have the cash to take care of this emergency, a credit card will come in handy.
Of course, the final reason you need a credit card is because everyone has one…no, not really…but we do live in a credit oriented world. You need a major credit card to rent cars, buy airline tickets, and reserve hotel rooms. Using credit cards for these things is okay, as long as you have the money set aside to pay your bill in full each month. If you don’t have that money available, don’t borrow it! Keep that card in your wallet.
Learn to keep your credit cards under control. Use them to fill up your car with gasoline once a month, and then pay off the balance right away when the bill comes. This will keep your card active, help you establish credit, and at the same time, keep you out of debt!
There are professionals who help individuals like you plan their financial futures. They are called Financial Planners, and you may need one! A financial planner can help you set and reach all of your financial goals – for your entire life.
When it comes to money, most of us are emotionally attached to it. However, a financial planner is much more objective and can help to guide us in the right direction. It’s like having a guardian angel.
First, a financial planner will help you create a financial statement to see where you currently stand. Then, they will help you set up a budget. Believe it or not, most of us really do need someone objective to tell us how, where, and when we should spend our money. Those who use financial planners often do better financially than those who do not use financial planners.
Before setting up a budget, the financial planner should discuss your goals with you. Do you want to purchase a house? When? Do you plan to have children? When? Do you want your children to attend college? What age do you want to retire? All of these decisions have a financial impact on your life, and they must be planned for in advance.
With your financial goals in mind, the financial planner will work with you to set up a budget that you can live with. That budget will incorporate your financial goals. The financial planner can also advise you on investing your money to reach all of your financial goals, within the time limits that you have set.
When choosing a financial planner, look for one that has the proper degree and credentials. They should be a Certified Financial Planner (CFP), and have several years of experience. Ask about their continuing education. You want a planner that keeps up with the changing times. Talk with the financial planner before hiring them, and make sure that you feel like they are putting your best interests ahead of their own interests.
Warning! Avoid financial planners who earn a commission for selling you financial products. They should get paid a fee for their time and services, of course. But if they earn commissions on products they recommend to you, they are incapable of being objective. If you’re not sure, ask.
Imagine that you have gone to apply for a home mortgage loan, and you are told that you were denied – because your credit wasn’t good enough. Not knowing what is on your credit report ahead of time is a mistake that many first-time home buyers tend to make. It is important that you know what is on your credit report, and you should get a copy of your report at least once each year – even if you don’t intend to apply for any loans.
The first reason for needing to know what is on your report is to ensure that everything on it is right. The fact is that out of ten people, at least five will find errors on their credit report.
Those errors can keep you from getting loans or credit cards. They could even keep you from qualifying for some jobs! When there is an error on your report, you need to call the reporting agency and the creditor to clear up the problem as soon as possible.
Pulling your credit report is also a good way to know if you have been the victim of identity theft. Some errors may not be errors at all… they may be proof that someone else is using your information! Again, contact the reporting agency, the creditor, and if necessary, the police. You can subscribe to online services that monitor your report and help to protect you from identity theft. These services include LifeLock, which is backed by a million-dollar guarantee that if your identity is ever stolen while you’re their client, they will do whatever it takes to fix it. Another one I recommend is Privacy Matters, whose subscription includes unlimited copies of your credit report and your credit score (also called FICO score).
You have the right to one free copy of your credit report per year from each of the big three credit reporting agencies. They don’t have to be requested at the same time. For more information go to AnnualCreditReport.com or contact the credit bureaus directly (see list in Appendix).
If you do have negative items on your credit report that are not errors, it is in your best interest to take care of those matters as quickly as possible. In many cases, you can call the creditor and work out terms with them, or negotiate a lower cost for clearing up the debt. Most creditors will work with you is they see that you are making a genuine effort to clear up the matter.
Don’t make the mistake of not having anything at all on your credit report. You want items on there, and you want them all to be good. Many would-be lenders actually view some bad credit as being better than no credit at all! It’s difficult to get credit when you have no past credit.
This is easily rectified by applying for and getting a major credit card, and making the payments on time.If you have the cash to buy a vehicle out right, you are actually better off – from a credit standpoint – to finance the vehicle, and then pay it off early, after about a year. This will show positive credit on your report.
You can find contact information for the big three credit reporting agencies in the Appendix.