Financial Advice
Although I'm not a certified financial planner, I do have some ideas and stories to share with you regarding money. My comments are based on over thirty years of steady earnings and lessons learned from foolish spending, wise investing, lots of reading, and the input of dozens of qualified financial planners.
The following are links to some suggestions I have to offer, for whatever they're worth. If nothing else, they might get you thinking about your future and how you might handle your earnings.
What you earn vs. what you get - you might be in for a surprise!
General Rules-of-Thumb ...
Create a budget and stick to it. Revise it as your income and investment goals change.
Spend no more than one-fourth (25%) of your net (after-tax) income on housing (rent or house payments).
Pay yourself first every payday by putting aside no less than 10% for the future (we'll talk about this later).
Never go without insurance (for your car, house/apartment contents, health, and life).
Help those less fortunate than yourself and you will be helping yourself.
There are other rules-of-thumb, but this is a good start.
What Should I Budget For?
A budget is an instrument used to plan the spending of all your earnings. You may notice that monthly payments to a charge card company are not included among the budget items below. It's best to pay those off every month, completely. If you don't, I guarantee you'll be accumulating some horrendous financial service fees (the cost of borrowing money from the charge card company). You'll also believe you can live at a level that, in reality, you can't afford. I encourage you to not make that mistake.
What about college loans? If you have college loans and other charges on a charge card, and they deserve to be placed in your budget to assure that they are paid off in a timely manner, then add them to the budget below!
Here are some of the things for which you may budget your money. The list is not complete, and it may not include some things you consider important. But it does provide the beginnings of what may become your budget.
Housing
Rent or Mortgage (including principle on a loan, interest and property taxes) Association (Neighborhood) fees Insurance (Renter's or Home) Maintenance (equal to one month's rent, for mowing, snow removal, repairs, etc)) Utilities Telephone Cable television Alarm system Personal
Medical expenses (annual physical, dental) Life Insurance Personal Umbrella Policy Long-Term Care Insurance Groceries and Eating Out Vacation and other travel Entertainment (movies, videos, etc.) Clothing (Paying off a college loan) Transportation
Car Insurance Maintenance (Gas, oil changes, tires, repairs) Parking fees AAA (or something like it) License Plates Property tax Office
Books and journals Memberships in professional associations Supplies (pens, computer, stamps, etc.) Travel to conferences, etc. (a IRS - deductible item) Postage (to pay all these bills!) Duplication fees (Kinko's, etc.) Miscellaneous
Gifts Hobby-related expenses Maintenance of pets Tax preparation (accountants save you $$) Contributions Savings
See the list My father imposed a budget on me when I was a child and I kept to it, with revisions of course, until I was in my twenties. It was a strict budget requiring that I account for every penny I spent each month. I hated it. So, when I was on my own and able to do as I pleased, I revised the budget to allow for greater diversity and flexibility in my spending, a little more fun, and I didn't have a heart attack if it didn't account for every penny (dollars by that time!) spent. My bank account and checking account balanced, usually within just a few dollars. I survived.
The point is, a budget has to feel comfortable. But having one is a necessity unless you are an excellent money manager. Most people aren't. There may be nothing easier than spending money and, without a budget, you can end up spending (and charging) more than you have. That's a very self-destructive process.
The emphasis on insurance in the chart above speaks to a related issue - making sure that, should disaster befall, you won't be left penniless.
Investing in yourself includes maintaining good health, dressing in a way that pleases you, staying psychologically, medically, spiritually, and physically fit, and keeping an eye on your future. Assuming, and hoping, that you live a long life, you need to have resources later in life should you anticipate leaving fulltime employment before you leave the good Earth. We'll return to that later.
In order to afford all these things, it's best to budget for them. I encourage you to sit down and calculate what your health care expenses were last year, and how much you paid for clothing, fitness-center expenses, running shoes, work-out equipment, counseling - all the things you may have needed to keep yourself fit. If it was an unusual year for some of the expenses, then calculate what you think you would need for an average year. Divide the total by 12 (for 12 months) and you have your average monthly budget allotment.
I don't mean protecting yourself against AIDS, although I hope you are doing that. I mean protecting yourself against financial meltdown. How does financial meltdown happen? Don't carry any insurance and you'll find out. Automobile accidents, falling down, getting sick, having someone sue for your your neglect - any one episode of any one of those things and you can be financially ruined.
Also included is paying attention to your health. If you think you have the beginnings of a problem, please get to a professional as quickly as possible. Left alone, a simple problem can become a complex one and, given cancer and other consequences of modern-day life, it behooves you to act responsibly and quickly. Also included are not smoking, not drinking excessively, and being wary of illicit drugs such as marijuana, heroine, cocaine, and the psychedelics. I don't mean to preach. I do mean to suggest you be careful. Acts have consequences. Some of the consequences of those acts/choices are way out of line compared to the pleasure to be derived from them in the short term.
Helping Others
"Helping others" refers to contributing to your community. It may be by way of volunteering yourself for community service (joining a task force or committee, being politically active, spending two days a year with a group that picks up trash in a neighborhood, etc.), donating goods or money, or serving on the city council. It also includes contributing to your faith (donating goods, services, and money to your church, temple, masque, etc.), if that's your thing.
And it includes being a good Samaritan, going out of your way to make sure the children in your community are happy and healthy, getting to know your neighbors and helping them when asked. I mention these things here although their connection to "Financial Advice" may seem remote. It isn't. Acts of kindness have a way of coming back to those who extend them. It's earnings of another sort. And in a practical way, by building and maintaining a strong sense of community in your neighborhood you also contribute to the long-term value of your home.
If the fates are with you, and your genetics are good, you will live a long life. Do you want to work fulltime throughout your entire life? If not, would you like to be able to quit working, or at least working fulltime, and still anticipate several quality years of life? If so, you'll either need to 1) invest in your retirement starting now, 2) depend on someone leaving you a sizeable inheritance, 3) win a lottery, 4) marry into wealth, or 5) rob a bank (not a good plan). I don't know what your choice is but mine was number "1." It's something over which I have control. And you do or can have control over your destiny in this regard.
If, like me, you would like to be able to quit working at some point knowing that you will have the resources needed to have a good life after leaving fulltime work, then you may be interested in this ...
Your first source of income after retirement or fulltime work will be social security. Your employer will likely be contributing to your social security account, as will you. This will be a part of your retirement portfolio (all the sources of income/investments you possess at any one time).
If your employer offers a pension, that is a second potential source of retirement or after-fulltime-work income for you. Your employer may have a pension or other retirement fund being set aside for you.
Your third source of income may be from your employer's 401(k) or 403(b) account. Folks who work in private industry typically have access to a 401(k) while those who work for the government may have access to 403(b) accounts. These accounts are an important and valuable asset for you in the future - IF you invest in them.
Under certain circumstances, you may be allowed to invest up to a certain portion of your gross salary or a certain number of dollars per year in an investment account (usually a mutual fund or similar vehicle). The exact percentage or amount varies from year to year as legislation changes that controls those accounts. Ask your financial planner (or your banker, accountant, or other knowledgeable person) about these accounts.
The money invested in these accounts is invested PRE-tax. The amount you want taken out of your salary and invested in them (one or the other account, depending upon who you work for) will be invested before it comes to you. That's BEFORE it gets taxes. If you invested the money AFTER you were paid you would have already LOST about 30% of its value. You lost that by paying taxes on it!
The money you invest will earn interest, without taxation, for many years and accumulate. It is referred to a "compounding interest." You earn on your original investment AND you earn on the interest it accumulates year after year. Please inquire at your employer's Human Services or Personnel office about the availability of such accounts, whether you have access to one or the other, and how much you can contribute to them. You may even find that your employer will match what you invest or invest a certain amount for you. As soon as you can, get invested in the account and increase your investment until you are investing at the maximum level. This is among the BEST ways to accumulate wealth for your future and the future of the family you may have. If you don't believe me, ask a financial planner.
A fourth major source of income can come from investment of your after-tax earnings. That's money you've been paid by your employer (on which you are taxed), but which you invest rather than spend on goods and services.
Are you interested in investing in mutual funds (read this very useful website), bonds (read this one), or other instruments? You can also learn about index funds - one of the less risky of the potentially profitable ways to invest in the market.
If you don't know much about these, and you don't feel comfortable reading about them, you can learn more by visiting a financial planner. Most planners are happy to offer you some free advice at your first meeting with them. From then on, expect to pay for their advise through your investments. They'll explain that. By the way, find a financial planner who is a C.F.A. (a Certified Financial Planner). They're the most legitimate and professional.
You can learn more about "13 Steps to Investing." The steps you will learn about at that site include settling your finances before investing, setting proper expectations, using index funds, learning about the power of reinvesting dividends, opening a brokerage account (although I do not suggest you invest yourself - use a Certified Financial Planner), planning for retirement, and much more.
Use www.google.com and type in the key words "define: index fund." After learning what an Index Fund is you can explore www.indexfunds.com where you can learn more about all kinds of index funds.
Use www.google.com and type in the key words "define: mutual fund" and once you've learned what mutual funds are, go to www.fool.com/mutual-funds/mutualfunds.htm where you can learn more about mutual funds.
Millions of Americans are invested heavily in both Index Funds and Mutual Funds. You should learn more about them. Explore The Motley Food for great investing ideas - for both beginners and more experienced investors.My concern is that you not only think about all the things I discussed above but that you ACT on them by creating a budget, living within it and, by doing so, get yourself invested for today, tomorrow and for the long-haul. We come into this world alone and leave it the same way. The time between will be much sweeter if you plan for financial security.
