Personal Finance That Works

by James on August 27, 2013 · 4 comments

It's good to occasionally go back to the basics when it comes to money. If you're looking for personal finance that works these seven tips will get you there!

It’s good to periodically review the personal finance basics. These aren’t earth shattering, but they do help you get ahead.

1. Live below your means. The principle behind this is simple. If you earn 1,000 bucks per month, but you spend 1,100, then you’re running into trouble.  But on the other hand, if you earn 1,000 bucks per month, but you only spend $900, then you’re in good shape.  It’s one of those basic things that everyone knows, but it works. Especially if you do it over the long term.

2. Automate your finances.  Getting your finances on autopilot generally means moving your cash around using electronic transfers. This could be deducting some of your cash directly into your 401k or automatically sweeping some of your cash from your checking to your savings account every month.  The idea here is that it saves you the labor of having to make the transfers yourself.  It’s also good because if you’re bad at saving money, you give yourself fewer opportunities to waste your cash when you automate and avoid cheap checks.

3. Save. Do it. Save. There isn’t any getting ahead with credit. You’ll have to pay interest, which creates substantial drag on your wealth building. If you want a house, a car, stocks, etc. You have to save. There just isn’t any substitute for good old-fashioned saving. Saving your money also empowers and focuses you on what you really want.

4. Invest regularly. There are plenty of examples of people who have managed to invest regularly for decades who have achieves substantial fortunes – like a couple of million for having invested over 20 or 30 years.  This is because U.S. equity markets have enough integrity to allow you know if you’re investing wisely and because investing in good quality blue chip stocks tends to snowball your capital over time. (Read how you can build wealth with only $600 per month!)

5. Be careful about debt. The major issue here is that high interest credit card debt can really put the brakes on your wallet. Credit cards are still charging north of 20% in addition to other added fees. Car loans range from 3 to 9% and credit for things like weddings, furniture, and computers can be as hefty as 18%. The bottom line is that is that these kinds of interest rates are great for people who are lending money, not for people who are borrowing it.

Think about it, do you know anyone who got into financial trouble because they didn’t borrow enough money? Probably not.

6. Maximize your returns. It takes money to make money.  Open an account with a mutual fund company that has no-load funds and low expense ratios. Build a diverse portfolio and you can reasonably expect to earn 8 percent to 10 percent annually on your investments over the long haul. This is because diversification actually means you get higher returns and lower volatility. Simply put diversification = more money for you.

7. Get a plan. Usually knowing where you are going is a prerequisite for getting there.  Get a plan, write some goals.  Be sure your plan is achievable and measurable. This will help you focus. Also, people who have goals tend to be more likely to achieve them.



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{ 4 comments… read them below or add one }

1 Michelle August 27, 2013 at 10:09 am

These are all great tips! Definitely live below your means. You don’t need to buy things just because other people are buying them.

2 Grayson @ Debt Roundup August 27, 2013 at 11:03 am

Simple and to the point. You don’t have to reinvent the basics of personal finance, just understand them and use them.

3 James August 27, 2013 at 10:11 pm

Hey Michelle and Grayson – thanks. This is basic stuff, but it works.

4 Ray May 10, 2016 at 5:52 am

Agreed, and also work on your potential earning ability. Read books about your career or profession, leadership and management, and business and investing so you find ways to do all of the seven above better.

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