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What You Should Know About Personal Finance

The lessons being taught in schools are all important. But not everything that we need to know in life is taught there. There are some very vital things that you need to learn on your own. One of those things that you need to learn outside of school would be personal finance. Knowing how to handle your finances is a very crucial part of life. Even if you do manage to earn a great deal of money, but if you do not handle it in the right way then all of that would lead to nothing.

Do you know the right way of handling your finances? If you are still clueless as to how you can do that, then you should start learning it now. If you would like to start learning about personal finance, then here are some of the things that you should know about it. We have listed here some of the
most important topics that you need to know about personal finance today.

How to Budget

A budget outlines how much you earn during a set period and where all that money goes to. It shows how much you spend on housing, food, vehicle and other expenses. The budget should also reflect accurately the amount that you earn for each period. A budget is useful in determining if you earn enough or if you have to cut down on your expenses. When you go about without a budget, you could never know where all of your money is going. It would not really matter if you earn a great deal if you do not plan on how you will be spending it.

Credit and How it Works

Credit is a very important aspect of personal finance and you need to understand it fully. Credit is an agreement where the borrower will be getting money from the lender in exchange for an agreement to pay that later on. Credit can take on many forms and you might have used it in the past. It comes in the forms of loans and credit cards. It is a very useful aspect of finance since it allows you to get or buy something even if you do not have the cash for it just yet. While credit is very useful, it can also lead to trouble. A lot of consumers are having trouble with credit because they borrow more than what they can really pay back. That’s why it is important that you should be responsible when you use credit.

Your Credit Report

In connection with your credit, it is also important that you should understand how the credit report system works. When you use any kind of credit that gets reported to the credit reporting bureaus and so you would have a file with them. Every time that you apply for new credit, the creditor would check with the bureaus and see if you have a god record. You will be given a score on how well you handled your credit and that score will determine whether you would get an approval for your new credit or not.

Building Up Your Savings

One of the consequences of personal finance not being taught formally is that a lot of consumers do not have savings. According to experts, a certain portion of the monthly income of an individual should be set aside as part of a savings fund. That fund can be used when the regular source of income gets interrupted. Like when a worker gets laid off for example. Losing one’s job does not mean that expenses would stop coming. You need a fund that you can fall back on.

Having enough savings is also needed for the long term as well. You should have enough money set aside to help you through when you retire. You need to start saving as soon as you can, even if the amount that you can set aside is rather small.

Buying Insurance

A lot of people are clueless when it comes to insurance. They don’t have any idea as to how their policy should be. The important thing to keep in mind when getting insurance is that you should not burden your loved ones once you are gone. Think beyond the cost of your burial and funeral expenses just in case. Your insured amount should be enough to pay for the education of your kids and the living expenses of your loved ones. You should also get other types of insurance that will help to protect your properties.

Getting a Health Plan

Another important aspect of personal finance is getting a health plan. Sooner or later you will get sick and so you have to be ready for that eventuality. There are many health plans that are available now, so you need to do your research in order to find the best one that would fit your needs.

Think of Your Retirement

You can never start too early in saving for your retirement. Calculate how much you would need to be comfortable when you retire. When you have the right amount, then start figuring out how you can get that amount. You can start with your savings, but unfortunately relying on your savings will probably not allow you to have enough money set aside when you retire. You can use other options like mutual funds and other investments, so that you can make your money work for you.

The Right Investments

Investments are probably the trickiest aspect of personal finance. For someone who has is not well-versed in finances this might be a bit hard to learn, but if you want to get your personal finances in order then you need to learn about this. Some people would rather place their money in a savings account where it would earn very little, but it would stay safe. But keeping your money in savings is not the right way to handle your finances. Investing means risk, but if you study the market and you are careful enough then you can minimize those risks.

There are different ways that you can invest your money. There’s the stock market and mutual funds. Study all the options first and know what each one can offer before making your decision.

Having an Estate Plan

Do you feel that you do not have enough assets to have a need for an estate plan? Think again because it can help you or rather your loved ones if you have a will and testament on the ready. Having a will can ensure that your wishes will be carried out even after you are gone. You have to identify the assets that you have and the people that you want to benefit from them.

Personal finance isn’t an easy thing to learn, but it should not be very difficult. There are many professionals out there who can assist you when it comes to getting your finances in order. You can get in touch with one so you can get some professional guidance. Also, it is important to keep in mind that you have to think about the long term when it comes to your finances.

Basics of Personal Financial Management

Experts like to say that personal financial management is a mix of science and art. There are both subjective and objective elements that have to be taken into consideration. But do not let that scare you from taking actions into setting your finances in order. There are some basic steps that you can take which can get you stated towards having sound finances. These basic steps are the pillars and foundation of sound financial management.

Maximizing Cash Flow

Maximizing positive cash flow is not that easy for most people. This is because the income of most people is limited up to a certain level. It is not easy to increase the money that you are earning. In order to maximize your cash flow, the easiest step is to cut down on your expenses. But even that is easier said than done because it is so easy to spend money. This is where having a good budget and sticking to it would come in. Positive cash flow means that you are spending less than your income.

Savings and Investments

Having savings is an important aspect of personal financial management. It is a way of preparing for the future and for unforeseen situations that can cause problems later on. When you have enough money set aside, that is the time that you have to think about investing it. Investments will allow your money to earn more for you. There is no such thing as a risk-free investment, but if you are careful enough then you can reduce the chances that you will lose your money.

Experts say that in order to be successful when it comes to your savings and your investments, you need to diversify your strategy and to make it consistent. Consistent investment means that you are putting money to your investment portfolio on a monthly basis. That can minimize the impact of the fluctuations of the market on your portfolio.

Even the most experienced investors cannot completely predict the way that the market would turn out all the time. That means you should also invest when the market is bad with the eye to the moment when things would turn good again and you can get your money back with some earnings to it.

Debt Management

After taking the initial steps of personal financial management, you might not still feel the effects of it. You might still find yourself being short of cash all the time. The reason for that might be the debts that you have. Payment for those debts could be eating up money that you could use for something else. If you have outstanding debts then you should not ignore that because it can hurt your credit score. You just have to learn how to deal with it.

The most sensible way of handling debt is to keep out of it. Do not buy anything that you cannot pay for in cash. This is especially true when it comes to the purchases where you have to use your credit cards. If you have obligations already then the next best thing to do is not to get any new ones.

Avoid Gambling and Scams

If you are a gambler and you have a tendency to spend a lot of money in casinos and other means of gambling, then you have a problem. All of your efforts to get your finances in order will come to nothing if you do not learn to curb your tendency to gamble.

Another thing to avoid would be falling into scams. There are many get-rich-quick ideas going around these days promising great returns with very little effort. Most of these schemes have no basis at all and some are even outright scams that are meant to rob you clean. Keep in mind that when an investment idea sounds too good to be true, most of the time, it really is.

Preventing Money Mistakes

One of the pitfalls of personal financial management is the reality that most people are prone to committing mistakes. Everyone is prone to bad financial habits. But if you want to make the most out of your money then you have to learn how to prevent committing those common financial mistakes.

Hike Your Deductible

A common financial mistake of many homeowners is paying too much home insurance. A survey of independent insurance agents has revealed that insurance insiders believe that homeowners are paying too much for their home insurance. The best way that this mistake can be prevented is by hiking your deductible. By hiking your deductible you can save more on your premiums.

Putting Off Getting Life Insurance

Life and health insurance are those things that you don’t think about when you are young and healthy. Being at the prime of your health can deceive you to think that you do not need life or health insurance just yet. But the older you get, the more difficult it becomes for you to pay for insurance. You need to start as early as possible. You can save a substantial amount if you get insurance while you are still young.

Paying on Time

A great deal of money is wasted on late fees. Some consumers do not mind this because they feel that there is no way that it can be avoided. You can always make changes so that the due dates of the bills that you have to pay will be set on the dates that are most convenient for you to pay them. You can call your utility providers and credit companies in order to have your due date changed. You can also set up automatic payments, so you don’t miss paying any of your bills.

Not Buying Stocks Based on Brand

A common financial mistake when it comes to investment would be buying stocks because of brand. A lot of first-time investors buy stocks based on the kind of experience that they have with the company. That’s not really a bad idea, but if that is the only basis that you use for buying stocks then you are setting yourself up for trouble. The price of stocks should be an even more important consideration when choosing which company to invest in.

Taking Risks

A study has shown many young consumers do not have anything risky in their investment portfolio. While it may sound good not to risk your hard earned money, there’s a problem with that. No risk means you don’t get any returns as well. Your money will be sitting dead for years to come. If you want your money to grow then you have to go out and start taking risks now. The best way to invest and not risk losing everything is to have a diverse investment portfolio.

Get Discounts

In this day and age of online purchases, it is a mistake to pay for the full price of anything when a little effort on your part would allow you to get things for a fraction of their cost. Start searching the internet for discounts and sales that you can take advantage of. But you should only buy the things that you really need and not be compelled to purchase anything because you see how cheap it is.

Common Financial Mistakes College Students Make

While you are preparing for college, thought about managing your finances can be non-existent. You are too busy thinking about studying strategies, staying away from bad influences, and what courses or subjects are important for you. These preparations are not entirely bad, though you need to think on a longer term. A lot of college students have dropped out because of financial problems or debt.

It doesn’t also help that you are entering college with very few experiences regarding money. Now that you’re on your own, you are solely responsible for the financial decisions you make – good or bad. The things that you learned from school don’t help that much when you’re faced with real-life situations or events. Here are some money management mistakes you need to steer clear from when you reach college.

Getting a Credit Card

One of the first things you will see when you enter the college grounds are booths that promote credit cards. They may offer certain freebies like shirts, sodas, and other paraphernalia just to get you to sign. You might think that having a credit card while you’re in college is a good thing, but there’s a higher reason why credit card companies are targeting new students like you.

When a student who doesn’t know much about finances sign up for a credit card it results in two things. First, the student maxes out the credit card because he/she can’t control his/her spending. The second scenario would be the student signs the terms and conditions without even bothering to read it. When the time for payment comes, the student is given a shocking (and expensive) lesson about interest rates and penalties. If you noticed, in both scenarios the credit card company wins.

It’s hard to resist the urge to get a credit card while you’re still a freshman in college. A lot of new students are made to believe that it’s free money right off the bat. However you should know better. If you really want a credit card, do it before you go to college. This way you’ll know about the finer details involved like interest rates, repayment options and other technicalities. It’s also much better to sign the terms and conditions in a bank rather than a booth in school where you’re pressured or just don’t have enough time.

Poor Spending Habits

College is always seen as a time of freedom – both for the child and the parent. A lot of students thus abuse this freedom and party or spend like there’s no tomorrow. You’ll be faced with many opportunities to spend your money. You may think that it’s okay for you to spend your money during weekends at parties or in shopping malls. During the weekdays there’s still a lot of minor unnecessary spending that can add up and take a lot out of your finance.

It’s very easy to make seemingly harmless purchases that accumulate and get out of hand quickly. A common example for this is coffee and fast food. If you’re not a morning person, coffee is definitely a must-have. For your meals, fast food also seems like the logical choice since it looks cheap and is readily available 24 hours a day.

To really maximize your budget, you can always buy a coffee pot of your own. Coffee beans are cheap and you still get your daily dose of caffeine. Don’t have that much time? Just buy an electric kettle and instant coffee. It still does the trick at a cheaper price. For food expenses, you can always buy fresh fruits and vegetables and make your own meals. A lot of college dorms have shared kitchens that you can take advantage of. Just make sure that the policies about storing food are clear or followed by everyone.

Not Creating a Budget

One of the most important things you need to prepare before entering college is your budget. When you get accepted to a university or college, the next thing you think of is the tuition fees and other school expenses. What you don’t normally think of is the amount of money you need for daily expenses and how much money you need to prepare. In the end, you either bring too much (where you end up spending it all) or bring too little and struggle all throughout college.

By creating a budget, you’ll be able to control your spending habits. You already know how much you are allowed to spend for the entire week so you will have a very good idea if the purchase you are about to make is worth it or not. If you go over your intended budget for the week, then you know how much you need to adjust the following budgets. As you can see, a budget isn’t only meant for showing your parents how financially capable you are, it’s also needed to ensure you don’t have to worry about your finances and just focus on your studies.

Lending Money

There will always be that friend (or friends) who is in financial distress. They might try to sway you with sweet words just to lend you a few hundred dollars to get by. However, you need to consider your own situation as well. You’re not earning money while you’re still a student (or not much anyway), and if they don’t pay you back you could end up in financial distress yourself. In addition to creating financial problems for you, it’s a very easy way to lose friends.

While you’re still getting to know your friends in college, learn to say no when it comes to financial matters. You’re only looking out for yourself, and it’ll teach your friends to better budget their own money.

Not Using Free Time Wisely

In addition to being free to make your own decisions, college also has a lot of free time. This is when students commonly go on spring break or overseas trips. These can be very expensive and definitely unnecessary expenses. Instead of wasting this precious time spending your money, why not use it to earn money instead? You can apply for part-time jobs or even some internship. Not only will you earn money for your everyday expenses, you’ll also have an edge when you apply for a job after graduation.

Missing Out on Financial Aids

Most college students are oblivious to the fact that they can apply for grants or federal loans. This results in missing out on deadlines and chances to save money. There are even scholarships that are available for most of the student population, not only the students at the top of the class. Talking to your school’s finance department before or during enrollment period can help you in applying for these.

College is a very crucial time for most students out there. Beyond the weekend partying, meeting new friends, and living independently, it’s also the time when you can forge your own character. In terms of spending, there are also countless money mistakes college students can make. Knowing what these are and preparing for it can help you become more responsible and save more money in the process.