Make Good Money

Posted by on June 28, 2009

If you were in a car accident or had a medical emergency today, would you be financially equipped to deal with it? Life has many ups and downs, and it is often when people are not prepared for the inevitable downs that they slip into debt. Once you cannot get your head above water, these downs begin a vicious cycle that can end in bankruptcy or lifelong financial problems. The solution is an emergency fund. Emergency funds are savings set aside in a money-market account or high-yield savings account that are NEVER touched unless a legitimate emergency occurs. That does not include having to get a new plasma-screen TV or a new boat, but more along the lines of a medical emergency or a death in the family.

Most financial experts recommend at least 3 months’ living expenses put away in your emergency fund, with some ranging all the up to 6 months’ living expenses. I myself currently sit at 2 months, but I plan on increasing that to half a year of expenses because I like to be prepared for anything. When you do have to spend out of your emergency fund, it is important to make refunding it priority number one in your financial strategy. Before paying off your credit card debt, paying down your car loans, etc., it is of paramount importance to have that emergency fund to fall back on.

The benefits of emergency funds are not just financial, but emotional. Knowing you have money set aside to handle emergencies gives peace of mind. When I was struggling to pay rent a couple of months ago while in between writing gigs, I did not worry much because I knew I could dip into my emergency fund if need be.

Posted under saving

Posted by on June 17, 2009

What are the real tenets of effective money management? There are a million personal finance books touting a million different methods for eliminating debt, building emergency funds, buying a home, investing, etc. You name it, and someone has written a book or two about how to do it. But are there common threads between all of these authors? I think the answer is yes, and here are the truly indispensable parts of any personal finance makeover plan:

• Every personal finance book you will stress spending less than you earn. It is the number one golden rule that every author can agree on. You will never get out of your financial hole if you do not create positive cash flow.
• Earn more. There are numerous ways to go about this. Invest in yourself by taking continuing education classes or attaining additional work certifications, create alternate income streams by monetizing hobbies, network in your work place, etc. Once you have started to spend less than you earn, it is very important to figure out effective ways to increase that gap.
• Live frugal. Now, some people confuse frugality with being a cheapskate, which is untrue and misleading. Frugality is aligning your purchases with your personal values, while being a cheapskate means never buying anything and sacrificing necessity for the sake of accumulating more cash. They are two very different mindsets. Frugality involves maximizing your purchasing power, taking advantage of deals and sales, and following the “10-second rule,” which is taking 10 seconds to think about whatever you are purchasing before laying your hard-earned cash down.
• The final piece of the puzzle is managing your money. Pay down high-interest debt first, create an emergency fund, and invest 10% of your income towards retirement.

Follow these tips and you will be on the path to financial freedom!

Posted under Money Management

Posted by on May 29, 2009

I recently read Your Money or Your Life, and it completely changed the way I think about and treat money in my life. It is a book that challenges conventional assumptions about money and how it is used, and puts it into terms of life energy instead of dry little pieces of paper.

The first aspect of the book that I found especially illuminating was calculating your “real wages.” This is not just the money you make from your salary, but you need to consider reductions like commute, lunches, time spent at home preparing for work, etc. Once you have calculated your “real wage” you can consider whether or not another form of work would better suit you, even at a pay cut, because if you eliminate a lot of the extraneous expenses you can make the same amount of money even if it appears lower at first. It is also important to consider your time spent working as it applies to your life energy, if you have more hours to do what you want at a lower pay scale, it may balance out because you will be less stressed about getting to do what you enjoy.

The book also recommends charting your income vs. your expenses each month, so you can have a visual representation of your financial progress. I have that exact chart taped to my wall right now, and it gives me motivation every day to increase that gap on the chart. I like knowing that I have positive cash flow coming in and that I am putting money away towards retirement and other investment projects. Do not underestimate how powerful a visual reminder like that is! I highly recommend the book to anyone that wants to view their money in a new light.

Posted under Random Musings