Last month, we wrote about Eric Tyson’s simple tips for improving your personal finance. Today, I wanted to follow up with a few more useful suggestions by Tyson. The idea here is to give you some basic personal finance principles that you can apply to your own wealth.
1. Understand and Use Your Employee Benefits. If you are gainfully employed, you may have access to educational and retirement benefits. In some cases, the retirement benefits such as matching 401(k) contributions can significantly improve your bottom line. Using your educational benefits can help improve your value to your employer or your quality of life. In short, taking advantage of any benefits your employer offers can increase your earning potential.
2. Research Before You Buy. Don’t purchase financial products strictly on the basis of advertisements or salesperson’s solicitations. This is good advice. A few years back, my wife and I were in the branch of a major bank in Oregon and a saleslady tried to sell us an annuity with a 6 percent sales charge. Annuities typically are favorites for sales staff because they have generous fee structures. Because of their fees, they are generally poor investments. The main point here is you should research products before you buy them.
3. Avoid Financial Products That Carry High Commissions and Expenses. Firms that sell their stuff using aggressive sales techniques generally have the worst financial products and highest fees. Did you ever wonder why it is that you need to ask around to find great insurance providers or why its necessary to hit the books to find good stock picks? Generally speaking, you should consider having a healthy sense of skepticism when someone tries to sell you a “fee’d-up” financial product.
4. Don’t Buy a Financial Product You Don’t Understand. Instead of giving in and buying something you’re not familiar with, the best thing to do is ask questions and get informed. This may take some effort, but it’s probably worth it in the long run. The marginal improvement you can get from buying the right kind of insurance or mutual fund can really pay off over the long term.
5. Invest the Majority of Your Long-Term Money in Ownership Vehicles. Tyson says, and I strongly agree, that the bulk of your money should be put into investments that have ownership potential. This includes real estate, stocks, or your own business. Other types of investments such as bonds or savings accounts may not give you the kind of return you need. This makes sense. In the past, I’ve made money (like $30,000 or more) on stocks and real estate. Since nothing succeeds like success, I highly endorse Tyson’s last point here.
Here are some more posts on the nuts and bolts of personal finance:
Source: Eric Tyson: Personal Finance For Dummies, 3rd Edition.
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