Tuesday, July 7, 2015

Personal Finance ABCs, Part 1

Today's post will be the first in a fun, three-part series.  For a subject that really boils down to simple principles, there's a lot to know about personal finance.  We'll be reviewing twenty-six of those simple principles with some personal finance ABCs.

A is for Automate- Automating your finances takes a lot of the emotional decision making out of your money management.  Setting up automatic monthly transfers with your bank from your checking to savings account (or retirement account) can really help you get those savings numbers up quickly, without thinking about it.  Automating bills in the same way hedges against you forgetting to pay on time, reducing any late fees or hits to your credit score.

B is for Budget- If you don't know where you are, you can't get to where you're going!  Setting up a monthly budget will give you a good picture of where you are financially.  It gives you the opportunity to tell your money where to go rather than wondering where on earth it went.

C is for Controlling Your Credit- Rather than letting it control you.  Credit can be a wonderful tool.  It can allow you to get a loan for something like a house or a business.  When used responsibly, credit cards can be a great way to rack up points to travel for free.  But when you're loose with your credit obligations, borrowing more than you can afford or paying back creditors late, it can destroy your life.  You may not be able to get a mortgage or a business loan.  You may become a slave to debt.  If it gets too far out of control, you may not even be able to get a bank account.  Take care of your credit so you can make it work for you.

D is for Destroying Debt-  Have you flubbed with the letter C?  Don't panic.  Okay, fine. Panic.  But then take a deep breath.  Vow to destroy the debt you've racked up.  And make it a priority to pay it off.  With determination, laser focus, and hard work, many have paid their debts off in a seemingly miraculous amount of time.  You can, too.  It won't be easy, but it will be one of the best things you will ever do for your finances (and therefore your future lifestyle.)

E is for Eliminating Extraneous Expenses- You have heard this framed in terms of Starbucks, but I'm not an avid coffee drinker, so we'll put it in the broader scope of things.  After you've tackled letter B and made your budget, identify all the little things that you're spending money on, yet aren't adding any real value to your life.  Maybe it's coffee.  Maybe it's lunches out during the workday.  Maybe it's a subscription to a service you don't even use anymore.  Whatever it is, cut it.  You don't need it, and those dollars you're spending on it could be put to better use somewhere else.

F is for Financial Independence-   Wondering where else to put those dollars you stopped spending after letter E?  Put them towards yourself and your freedom.  Financial independence means a lot of different things to a lot of different people, but ultimately it means being able to do whatever you want without being a slave to money.  You'll have enough of it saved up in a combination of cash and investments to be able to do work  you love, or not do work at all.  To prioritize your values, and then live up to them.  To travel if that's your thing, or make the community you love to death an even better one.  Financial independence requires sacrifice in the here and now so that you can enjoy a longer period of your life before traditional retirement age.

G is for Giving Back- No matter what stage you are in of your financial journey, giving back is possible.  While being financially responsible is a good thing, being miserly isn't.  Giving back not only helps others, but makes you feel good.  It makes you feel more connected to your community or whatever cause you are giving to.  If you can give in big financial ways, you can make a big impact.  But if you don't have the means to give monetarily, you can also give your time.  To many organizations this is just as valuable, and you get to see your impact hands-on.

H is for High Interest Savings Accounts-  A few weeks ago we talked about making sure your savings account is making the most money it possibly can.  Although interest rates are low across the board at this time, the difference between accounts makes it worth shopping around.  Let's say you have $10,000 in your savings account.  If your current account has a 0.10% interest rate, which many that offer them piggyback to checking accounts do, and you deposit nothing else for the entire year you'll be making a whopping $10 in interest.  But shop around and find a savings account on the higher end (right now) with 1% interest and you'll bring in $100.50.  That's a big difference, and only gets bigger as your savings account grows.  To find out where to find these accounts, check out this post.

I is for Investing- Whatever your investment vehicle is, a 401k, a super, an IRA...use it.  And start using it young.  Even if you can only contribute small amounts early on in your career, the compounding interest you gain by investing in the market will make your money grow quicker than you'd believe.  Time is the most powerful ally you can have when attempting to build wealth.

Come back next week for J-R in the Personal Finance ABCs!

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