Miel and I talked this over last night. At some point, everyone starts out not knowing much about money. Then for whatever reason, they decided to get their financial act together. I’ve been there, Miel has been there, and you, dear reader, have probably also been there.
The question is, once you make that decision, what do you do? Well, we think there are three ‘no brainer’ things everyone can do get on the right financial track.
1) Pay off all your credit cards. Credit cards are like crack. You can get whatever want immediately, regardless of whether or not you have the money. But also like crack, using them can have serious consequences.
The major problem with credit cards is their high levels of interest and exorbitant fee structure. For example, most credit cards charge an annual rate in excess of 12 percent; some go as high as 25 percent. No investment will beat that. Not only that, even missing a payment by a day or so will result in the imposition of ridiculous fees. Also the interest on credit cards is not deductible, so it doesn’t make sense from a tax standpoint to carry the debt.
2) Max out your IRA. You can’t miss by maxing out your IRA. Doing this gives you three advantages. First, you get the market rate on whatever financial instrument, you choose to buy within the IRA, this is typically mutual funds where you’ll get 11 percent (assuming the market holds up). Second, you’ll reduce your taxable income, so you won’t have to fork over as much to Uncle Sam. Everyone loves Uncle Sam. He loves you too and that’s why he’s giving you this break. Third, if your employer will match your contributions, you’ll get that free money.
3) Pare Down Your Lifestyle. Miel and I had a long debate about this and eventually she won me over. The main point here is that you can usually find ways to economize your lifestyle. For example, you might be able to cancel some of your magazine subscriptions, sell some of the stuff in your closet on craigslist. The key here is to minimize your unnecessary expenditures. For example, when Miel and I moved in together, we cancelled my land telephone line.
While these points are sometimes hard to realize, following them will payoff in the long run. We’ve done it, and we’re all the more happy because of it.
-James
DINKS (Dual Income No Kids) Finance is a blog discussing personal finance for couples. While by no means financial experts, we own a variety of assets including real estate and stocks. We've both been up to our eyeballs in debt and have made tons of financial mistakes. However, we've both successfully retired that debt and we both do learn from our failings. We hope that our voice in this blog can help others in achieving their goals!
