Time to Review Personal Finances
If you’ve had the feeling lately that your personal finances are on the skids, you have plenty of company. Continuing unemployment challenges, salary cutbacks and some rising prices at the level where it hurts families most have many Americans either lining up to join the Occupy movement or simply suffering in silence. The alternative is to take charge of your own finances, whatever that entails.
It’s something few Americans do well. The great majority are ill-informed about financial matters and largely ignorant of the vocabulary that defines personal finances. A 2006 survey conducted by CARE found that 60 percent of the college students who were questioned had never had a meaningful conversation with their parents about personal finances. They had not been taught at home. nor at school. The tendency for too many is to take what money is coming in, spend it and wait for more to come in. The lucky ones find that the income covers the outgo.
Failing to take control, under any circumstances, is tantamount to avoiding a doctor’s appointment for fear he’ll find something wrong with you. Start today to get control over your finances.
Resources
Many sources of help are easily available. Among the many books: “The Money Book for the Young, Fabulous and Broke” by Suze Orman; “Debt is Slavery” by Michal Mihalik; “Brazen Careerist” by Penelope Trunk; and “The Random Walk to Investing” by Burton Malkiel. Four websites touted as “great personal finance sites for recent grads” include getrichslowly.org/blog; www.iwillteachyoutoberich.com; thesimpledollar.com; and money.cnn.com/magazines/moneymag/money101/.
Some very sage and simple advice from experts includes the common-sense directives to spend less than you earn, track spending, get rid of credit cards, avoid debt like the plague and budget. One very uncomplicated budget scheme says to give 50 percent of your income to needs, 20 percent to wants and 20 percent to savings. That may not be possible for everyone in every circumstance, but savings are essential to handle emergencies and provide for unforeseen expenses, even if it’s as little as 5 percent of your income. It’s what they call the “pay-yourself-first” approach. Make it a top goal and adhere to it consistently.
Your Current Financial Condition
The first thing that those in the know concede is that no one solution that works for everyone. They advise that individuals do what works for them, without worrying that it might not be the “right way.” There is no right way. Take it slow and be patient.
But DO do something. Don’t waste lots of time looking for the best approach. Learn from your mistakes and keep moving, those with experience say. The first step is simply to find out exactly where you stand at this moment. Exactly, that is. No fudging. Finding out how your income compares to your outgo is essential to manipulating things toward better management.
You may be pleasantly surprised in such an evaluation to find that things may not be as bad as they feel. And if it really as bad as you suspected, a course correction without delay is vital. A worksheet is helpful to sorting out the income and outgo into visible guidelines.
Personal Finance Guides
In Morningstar’s Personal Finance Guide’s “How to Find your Money Baseline,” Christine Berg, director of personal finance, says that the information you develop in making your assessment of your assets and liabilities should then become the blueprint for budgeting. Set goals and use them as a guide to dividing up your money. Your personal “money mindset” will no doubt influence how you proceed. People have widely divergent views of the relative importance money has in their lives and it influences them in such matters as choice of careers, spending patterns and how strongly they feel about savings. Some self-analysis of what you really think of money and what you want it to do for you is in order.
Essential to controlling your finances is learning the fundamental vocabulary and how things really work. For instance, few borrowers understand the true impact of the interest rates they pay on borrowed money—or earn on savings—because they don’t know the arithmetic involved in compound interest. There are many sources of information that can be tapped to educate yourself. Be very wary of debt when you don’t fully understand what the cost will be over time.
Savings Options
Knowing something about the nature of the many savings options available will help you select the one right for you. Questions you ask should include how available money put into a particular savings scheme will be; how much interest is paid and when and how; whether the plan is federally insured; what fees and/or penalties might be attached; whether check-writing is included.
Insurances
In tough times, it is tempting to bypass insurance payments, but don’t be caught without it, particularly on vehicles. A small savings could lead to a financial disaster. Life insurance may not be essential unless you have someone who might have to depend on your resources after you are gone. Homeowner or renters insurance make life more comfortable and again, are a relatively small input compared with the potential loss from a serious problem. Be certain you plumb every detail of insurance coverage provided by an employer. Group plans are the most cost-effective.
Investing
If investing is a possibility for you, be aware that the opportunities—and pitfalls—are endless. Get help. Investments are, by their nature, more risky than savings, but wisely selected have greater potential for adding to your income.
Bottom Line
Don’t let your money control you. Pay attention. Be mindful. Be honest, especially with yourself.