Monday, September 16, 2013
Fantastic Financial Advice for Everyone
Managing your finances properly requires discipline, attention to detail, organization skills, planning and sacrifice. These skills are also useful in other areas of your life. Managing your finances also reduces stress, anxiety, depression, frustration, anger and arguments. Many people spend time cleaning their house, organizing, updating, replacing and moving things around. Whatever the case – everyone organizes and updates their home but do you organize and update your finances?
Many people don’t know how much money they earn, how much they spend or how much debt they owe. Approximately seventy percent of Americans are living paycheck to paycheck. In some instances people live paycheck to paycheck because they don’t know where their money is going. Make a promise to yourself that you will do at least one thing to become better at managing your finances. Here are 6 fantastic ways to help you effectively manage your finances and keep your financial house in order.
Actions you take now will affect you in the future. Avoid being wasteful and always spend less than you earn - spend 70%, save 20% and donate 10% to charity. Create a budget to track and control spending. Track everything your spend money on and include savings goals. Subtract your monthly expenses from your total monthly income after taxes. If you have less than 5% of your income left over make some adjustments. Create an emergency fund to cover monthly bills and miscellaneous expenses for 9-12 months. Reconcile your bank accounts and verify every transaction including trips to the ATM. Spread spending for large purchases over several months to ease the burden. Reduce spending by 30% to reduce financial risks. Pay bills online or through automatic deduction to save money and avoid paying late fees, paper statement fees or other fees.
Insurance is a form of protection against loss, damage or theft. Insurance should provide enough to reimburse for loss or damages. The basic types of insurance everyone should have are: health, life and disability especially if you have children. Health insurance is needed if you need medical services or need to go to the emergency room. Disability insurance is used if you have a short-term or long-term medical condition that prevents you from working and ensures that you still continue to receive a paycheck, usually 60% of your salary. Life insurance is used in the event a family member dies and should at least be enough to cover burial expenses. Insurance needs grow as you get older so ensure your coverage and beneficiary information remains current and update yearly.
Don’t be a Sponsor
Learn how to say no. Avoid loaning money to others including your children even if you can afford it - especially if you are the person who earns the highest salary in your social network. Don’t loan money if you want the money paid back. If a person mismanages their finances loaning money will only enable them to continue their bad money habits. Instead, offer to pay for them to attend a financial course or buy them a self-help financial book.
You can't focus on anything else when you are in debt. Pay down debt and get current on late accounts. Keep debt excluding mortgage at 15% or less of your net monthly income. Use your credit card for emergencies only. Negotiate with creditors to setup payment plans to pay off old debts. Start by paying off the smallest bills first, then use the money paid towards a previous bill and apply it to the next bill and continue this process until all your debts are paid. Pay balances off at the end of each month or pay more than minimum monthly payment. Pay ½ the balance with the 1st paycheck then pay the remaining balance with the 2nd paycheck or pay the minimum monthly payment when you get the bill, then each week pay as much as you can toward the balance. Keep credit card balances at 20% or less of the credit limit.
Whether right or wrong - credit is used to judge your character and affects your ability to get hired for a job, get insurance or get approval for credit. Review your credit report at least once a year and at least 3 months before making a big purchase such as buying a car or home or starting a business. Check your credit report from the 3 major bureaus – Equifax, Experian and Transunion at least once a year. Order a copy of your credit reports at annualcreditreport.com. Maintain good credit. Dispute any errors either online or by postal mail. Pay your bills on time or setup payment arrangements to maintain a good relationship with your creditors. Avoid opening multiple new accounts in a year.
Plan for the Future
Contribute as much as you can go to your employer's retirement plan or setup your own. You will need at least 70-80% of your income during retirement and will need a minimum of $1,000,000 to retire depending on where you live, what age you retire, your health care costs, and your lifestyle. You will need money for at least 20 years in retirement. Setup an account even if you are self-employed or a stay-at-home mom. Focus on long term growth. You have to be willing to leave your money untouched for at least 5 to 10 years; otherwise you won't be able to see the benefits of your money growing. Don't put all of your eggs in one basket - diversify to help offset losses. The ideal approach is to contribute 10-20% each month towards retirement. Increase retirement contributions with each salary increase. Go past retirement - do better than your parents. This will ensure you have more than enough money to retire and enjoy your golden years.