A Beginner’s Guide to Personal Finance
As I peruse some of my favorite websites and other forums around the Internet, I often see questions of a rather basic personal finance nature posted. Sometimes they are as simple as “What is a 401(k)?” and sometimes more complex like “How do I create a reasonable budget?” Much of the time, these questions are being asked by young people just starting out. Sometimes these questions are being asked too late, when young people have already dug themselves into a bit of a financial hole.
There are entire books dedicated to the subject of figuring out personal finance and budgeting. So many, it is very hard to figure out which is the best for you. However, for anyone under 45, I have to seriously recommend Suze Orman’s The Money Book for the Young, Fabulous & Broke. This book explains everything you could ever want to know in very easy to understand terms. Even if you’re over 45, you should check this book out. It does concentrate on the single, young crowd however, and those married with children might find many of their questions go unanswered.
Another good resource is Money magazine. This personal finance magazine concentrates on just about everyone and has answers to many of your burning questions. However, since it’s in a magazine format, you’re stuck with whatever they decide to cover for the month. They also have a website run in conjunction with CNN. If you do have specific questions you would like this magazine to answer, it wouldn’t hurt to send it to them.
You will also find resources right here on Money Stuffed. Join the forums and ask any question you’d like. Liz, myself, or maybe someone else could have the answer for you. The forums are there for you to use and make your own resource. I also recommend the articles already published on the site, especially Budgeting for Dummies. It was originally written to answer the “How do I create a reasonable budget?” question when asked by a friend of mine.
For the initiated, this can all be overwhelming. There is so much to learn and you have to make sure you are not making mistakes as you go. There are a lot of faux pas waiting for those 18-year old young adults whose parents just turned them lose into the world without any basic personal finance skills. I was in this position not long ago, and I made every faux pas there could be in the arena of personal finance and out of control debt. Here are ten basic personal finance tips:
- Create a budget and stick to it.
- Use a personal finance computer program such as Moneydance, Quicken, or Microsoft Money to keep track of your budget and help you stick to it.
- Do not spend what you do not have. Credit cards are a good thing to have, but a bad thing to use. If you are unable to go home and transfer the money out of your bank account into the credit card account via your bank’s online bill payment system (or by writing a check), you are unable to afford it. If your purchase can be considered a necessity (a wonderful new blouse is not, food is), then you might have to work a couple of payments into your budget for the few months. It is important not to acquire credit card debt when you do not have to.
- If you have made the mistake of acquiring credit card debt (I know I have), then make sure you pay at least your minimum payments each month. Under no circumstances should you ever miss or underpay a credit card payment or other bills. This will mess up your credit history and make it very hard to crawl out of the bad credit category.
- Create some savings accounts and use them. ING Direct currently has an amazing 3.4% annual percentage rate on any money you put in with them. They have no minimum limits and you can save as much or as little as you can afford. The best thing to do is set aside a set amount each pay period and have ING automatically withdraw it from your main checking account. Most financial experts recommend you have at least 8-months of necessary income (what you need to get by) at hand in the case of an emergency (such as you losing your job or your ability to work). It adds up quickly.
Hint: Both Liz and I have ING Direct accounts and if you get a referral from someone who has one already, you will get $25 from ING placed into your account! (Full disclosure: the referrer gets $10 per referee) - Suze Orman’s website has an amazing resource for people trying to get their finances in order. Realizing the whole process is overwhelming, Ms. Orman has put together a tool you can use to determine your next steps and what you need to do to get your financial house in order. Every person is different and has different needs. Ms. Orman’s finance tool takes it all into account. You can sign up on Ms. Orman’s site using the code ‘98635472′.
- In a tough spot? Still paying your student loans? If you really need some time off from your student loans, they can be temporarily deferred if your loan is with the federal government still (some banks might allow this as well, but it might not be universal to all student loans so check with your lender). Your loan will still acquire interest, but you won’t have to make payments for a bit. This is an emergency only action and your lender could have some strict guidelines to allow you to do this.
- Have you been making all your payments on time for the past 6-months or more? You should call your credit card companies and let them know how good a customer you are. Then you should ask them to lower your annual percentage rates. Your goal should be to get all your card payments to under 8% APR.
- Have a $0 balance on a card? Received one of those new card offers in the mail offering a low APR for balance transfers? If you can get a low rate for the life of your balance, there’s no shame in jumping it over to a new card for the lower rate. You will ultimately pay off your debt faster. However, make sure you read the fine print. Most balance transfers will charge a percentage of the transfer as a processing fee. Check to see what the percentage is and how much it will really cost you to transfer. Often there is also a maximum transfer fee no matter how much you transfer. Figure out how much the transfer is going to cost you before doing it. If you have almost paid off a balance, it often does not make sense to transfer it.
- Know what is out there for you. Does your employer offer retirement benefits? Do they match what you put into your 401(k) retirement account? You should put in at least what your employer will match. Otherwise, you are simply turning down free money! You would be surprised how many people do not see things this way and lose out on a great benefit employers are providing! Know your other retirement options as well from standard IRA accounts to Roth IRAs. Check out Liz’s article on Roth 401ks which are coming in January 2006!
Still confused? Bankrate.com has a complete glossary of financial terms with over 650 financial terms and their definitions. It is definitely worth checking out!
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