Friday, May 23, 2014

Make Money Save Money. Personal Finance

I recently read a good basic article on how to manage money better.  I made a few changes and  highlighted what I though was especially valuable.  Here's what I came away with. 

1)  In the end: spend less than you earn. It’s the one point that comes up time and time again in every financial book.  Why? Because it’s true.

There are two avenues to achieving this goal: spending less and earning more. By working on either (or both), you can increase the gap between those two numbers. The harder you work on either spending less or earning more, the bigger that gap will become.

2)  Move towards your passions. Whatever really excites you and makes you want to do more and more and more and better and better, that’s what you need to move towards at all times.

3) Habits of all kinds are dangerous! Most people have some sort of routine in their day where they buy a morning latte or a bagel, or they drink six cans of soda, or they eat out at the same place each day for lunch.  These routines add up to a lot of money. Spending $5 every day in a workweek adds up to $1,300 over a year – that’s a mortgage payment for a lot of people. Spend some time looking at the stuff you do every day, especially the ones that require you to spend money, and ask yourself if they’re really necessary or could be replaced.

Food is a great example. Quite often, people will eat out and drop $20 or $30 on a meal that they could have made at home for $3.

4) The 10 second rule.  Every time you go to make any purchase, even when you pay a bill, stop for ten seconds and ask yourself if this is really something you want to spend your money on. Do you really need this?

5)  Don’t make yourself miserable! Most of the time, when you cut a bit of spending from your life, you’ll find that you never miss it. However, there are times when you find yourself really regretting it. If that’s the case, it’s probably a worthwhile expense for you.  See if you can't find another way to get what you want without spending as much money on it.

6) Pay off all high interest debt, such as credit cards. Focus first on the one with the highest interest rate and pay this off fully in as little time as possible.

7) Build an emergency fund.  An emergency fund is money you keep in a savings account that’s intended to be used in the event of a crisis, such as a job loss, a medical emergency, major car damage, and so on. I usually suggest to people that they measure their emergency fund in terms of months’ worth of living expenses.

8)  Start a side business. Instead of burning hours in front of the tv each night,  how about investing at least part of that time into starting a side business? You can try starting a blog with a few ads on it, or maybe you’re good with woodworking and can make deck furniture. Maybe you’re good at baking bread and can take loaves to the farmer’s market, or maybe you deeply enjoy gardening and can sell vegetables. There are lots of possibilities out there for starting a business that will supplement your current income and perhaps eventually grow into your main income.

9)  Invest! You might also want to start investing at this point. My recommendation is to buy low-cost broad-based index funds because they don't have many fees and grow well over long periods of time.  

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