Personal Finance 101: 5 Tips for Financial Security
When it comes to personal finance, security and stability are the twin holy grails. The good news is that you don't have to travel to faraway lands to a castle in the sky to reach these particular goals. Follow these tips and you will be well on your way.
1. Ditch the plastic
Spending money you don't have is the first step to financial disaster. If you constantly rely on your credit card limit to pay the mortgage, you'll never find even footing in your personal finances and you'll waste more of your money on interest payments. The key is to avoid accumulating debt altogether.
About 78 percent of American households held at least one credit card at the end of 2008. Some of these cardholders undoubtedly pay their balances in full each month, eliminating debt entirely, and this is what you should strive for if you want financial security. Many credit cards come with rewards programs for everything from free groceries to discounted airplane tickets. If you want your rewards, by all means get them -- but don't let those interest charges pile up. Spend only what you'll be able to pay off at the end of the month.
2. It takes a village
Keeping your money worries to yourself is a sure way to remain in the red. If you want to improve your personal finance situation, communicate with your family and let them know what's going on. Money is routinely cited as the primary reason for divorce, so your spouse should be your primary confidant when it comes to finances. You can also help get your head above water by utilizing your relationships. Do you know someone who has reached success in financial matters? If so, pick his or her brain for tips and strategies. Talk to trusted parents, aunts, uncles, friends and colleagues when you feel frustrated or overwhelmed.
3. Maximize your returns
Any extra money you have should be invested properly to ensure optimal returns. This includes your retirement account, stock portfolio, savings accounts, mutual funds and anything else you can use to your advantage. You don't have to pursue an aggressive investment strategy to see results. Look for relatively safe investments with low yields. These can firm up long-term financial strategies that pay off big on the back end. Don't let your money sit in a checking account with no interest earned or you'll waste a valuable opportunity. In the same vein, it is a good idea to have a personal banker or finance manager handling your investments. Let him or her know your threshold for risk and listen carefully to any advice given. This is especially true if you are unfamiliar with the world of finance.
4. Write it down
Do you keep detailed records of your expenses? If not, start today. Record every purchase you make in a ledger: the amount spent, the merchant you paid and how you paid for the item. At the end of a month, you might be surprised to discover how much you spend on coffee, restaurants or clothes.
5. Pay with cash
It is easy to stop at your favorite store and swipe your credit or debit card for whatever winds up in your cart. Resist that impulse by paying with cash. It's harder to part with those crisp dollar bills, and fishing in your wallet for greenbacks will force you to think about what you're buying.
Video: Financial Planning: A Guide to Personal Finance
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