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Personal Finance 101

The subject of personal finance is veryexploring web sites, andreading emailed
broad, but as abeginning, I would like tonewsletters to keep abreast of what is newin
discuss what I consider thefoundation ofmy field. If I stopped learning just five
personal  finance:  security.years ago, Iwould have missed out on the
Internet revolution, email, websites and the
Securitymajority  of  the  income  I  now  enjoy.
Security to me means that I am prepared forKeeping myself informed and up to date takes
the  "hit  by  abus"  scenario.time andresources, but it helps me protect my
current income andexpand my skills to help me
I have life insurance to provide for my wifeearn  income  in  other  areas.
and  children.
This increases my stability by allowing me to
Health, disability, auto and home insurancenot have torely on one client, employer or
policies alsoprovide me additional protectionsource of income. A chairwith four legs will
in  their  respective  areas.always be more stable than a stool withonly
three.
I also have a list of where these policies
are, who myagents are, phone numbers andGrowth
basic  policy  information
The next level of personal finance, as I
(#s, amounts, costs, etc.) I keep thisalluded  to  before,is  growth.
information both in afile at my house and in
a safety deposit box at the bank (afriendsOnce you are secure and stable, you can begin
home will also work - think: "house burnsto think aboutbuilding your wealth. Not that
down"scenario). Also my wife and my brotheryou have to figure out howto become the next
and sister-in-lawwho live nearby also knowBill Gates or Warren Buffet. But youhave to
where  these  things  are.start building the "nest-egg" that you will
rely  onwhen  you  retire.
I also try to maintain an emergency fund of
cash in a bankaccount or money market accountAnd don't think that Social Security has you
(with checks) so that I amprepared for acovered, orthat your 401k will grow back to
financial disaster, layoff, orwhat it was a couple yearsago. Or that your
naturaldisaster. It took several years tocurrent employer is going to re-institutethe
build  up  this  cash  fund.generous pension plans of yesteryear. 401ks
are muchcheaper to administer and you, the
I started with a goal to have enough cash foremployee, take the hitwhen the market goes
6 months of mynormal financial needsdown,  not  the  employer.
(mortgage, food, insurance,transportation,
etc.). Now I am trying for 12 months'worth. IMy father is nearing retirement age and I
do  this  by  saving a little each month, andthink he has agood plan. He has done some
research and estimated what hisexpenses are
"investing" a portion of all "found" moneygoing to be when he is retired. He then took
(gifts,inheritances, tax returns, anythingalook at his potential sources of income
unexpected).during  hisretirement.
I have a will and update it each year aroundHe figured that Social Security would cover
New Year's toreflect any changes in my lifeabout a third ofwhat he wanted to live on.
during the past year (newchildren, new homeOnly a third! And he has workedhis entire
or business, etc.). Most people don'tneed anlife. Would you like to instantly have to
extensive will, the forms you buy at yourliveon only one third of what you currently
officesupply store will do. But in somemake? Retirement issuppose to be the golden
states if you die withoutone, watch out. Whatyears,  so  where's  the  gold?
happens to your money and even yourchildren
could be entirely up to some state orLuckily throughout his career, my father has
courtappointed  official.worked forcompanies that have had pension
plans and he had worked longenough at each
Stabilitycompany to be eligible for some pensionmoney.
This is rare these days because today the
The next level of personal finance isaverageworker will change jobs and companies
stability.at least five timesduring his/her career.
Also, as I mentioned before,companies are
Stability to me means that first of all Iswitching to lower cost 401k plans that do
live within mymeans. I don't spend more thannotguarantee  you  any  fixed  payments.
I earn. Otherwise I amspending my savings,
investments, emergency money, orgetting intoIn my father's situation, his pension money
debt. I have a lot of debt, but most of itwould coveranother third of the retirement
isreal estate which is producing some income.income he wanted. So now hehad to either
I try to avoidcredit card debt and purchasefigure out where the last third was going
everything with money Ialready have. I don'ttocome from, or start cutting out expenses
buy  things  expecting  that  next  monthduring retirement,like not visiting his
children so much. None of us likedthe sound
I will have more money or I will get a bigof  that.
raise orpromotion. You can't sell me a car
based on a monthlypayment amount; I want toSo my father started learning about the stock
know  the  final  price!market andinvesting in stocks and mutual
funds. He made a plan forgrowing his wealth
In order to make sure that I am living withinand then educated himself as to how hecould
my means, Icreated a simple budget and Iaccomplish  his  plan.
track  my  expenses  using  Simple
I wish I could say that he is doing better
Joe's Expense Tracker. I can tell how much Ithan he is, butluckily he has some time still
have spent ineach budget category and I knowto put his plan into actionand ride out any
when to keep a closer eye oncertain types ofmarket downturns. (He can do this becausehe
expenses, or when and where I can cutexpenseshas the security of insurance and emergency
and what I can live without in order to staymoney, andthe stability of little debt and a
withinmy budget. Counting pennies is prettystrong  set  of  skills.)
tedious, but trackingwhere the dollars go can
be  eye-opening.By learning about how stocks, bonds, mutual
funds, indexfunds, options, futures,
Another aspect of stability is avoiding orcommodities, real estate and otherfinancial
eliminating  debt.tools work you lay the foundation for growing
yourwealth. You may start with just $100 in a
Debt in itself is a form of stability; youbank CD, but asyou learn more and become more
always have tomake those payments until it issophisticated, you can investin more and more
all  paid  off.opportunities.
Some recent reports show that the averageYou will learn about how risk and reward are
American  is  $7,000related, thatas the risk increases so does
the size of the potentialreward. Just like at
- $20,000 in debt. Most of it is consumerthe race track, you'll make more onthe long
debt: creditcards, store accounts,shot, but the odds are against it. Also you
rent-to-own, auto loans, etc. Andthose typescanlearn how to tilt the odds in your favor
of consumer debt usually charge aand  protectyourself  against  risk.
higherinterest rate than any savings account,
CD, or money marketaccount; even more thanFor those who are just starting out in the
most  high-flying  risky  investments.growth phase orwho want to dabble a bit
before completing the other levelsof personal
This means that $1,000 in debt at 18% isfinance, my suggestion would be to look
costing you 9 timeswhat your $1,000 savingsintoindex mutual funds. Especially no-load
account  at  2%  is  producing.index  funds  (noinitial/sales  fee).
Consumer debt is a dangerous spiral that isThese funds are made up of the same stocks
very  hard  to  getout  of.that make up thepopular market indexes like
the  Dow  Jones,  S&P  and
The first problem is, as mentioned before,
living withinyour means. Don't get furtherNASDAQ100. The costs are low because
into debt to support anextravagant lifestyle.management is simpleand as a mutual fund you
Or even if you are frugal, if youare usingcan  invest  a  little  at  a  time.
credit cards and debt to finance your
purchases,you either need to stop purchasingAlso they are easy to follow since you see
luxury items or find away to increase yourthem on all thenews shows and in the
income  to  support  thesepurchases/payments.newspaper.
You may even have to lower yourProtection  and  Management
standard-of-living becauseyou have racked up
considerable debt and need to free upsomeThe final level of personal finance is the
money to pay it down. But don't wait toprotection andmanagement of your wealth. Most
start. Thoseminimum payments are oftenpeople never develop wealthenough to need
designed to keep you paying 18%interest forthis level. But some of the concepts can
40 years! That's longer than most home loans.beapplied to any amount of wealth you
possess,  $10,000  to
You could even end up paying more than 10
times the originalcost of the item just in$10,000,000.
interest payments. Is that newstereo really
worth  that  much?Part of the protection harks back to your
will as wediscussed on the first personal
To help people get themselves out of debt wefinance  level:  security.
created  the
With any significant wealth or valuable asset
"Pay Off My Debts" tool in Simple Joe's Money(your home,car, heirlooms, 401k, IRA,
Tools. It isalso available as a stand-alonebusiness, etc.) you will wantsome way of
product  called  Simple  Joe'sdisposing  of  that  asset  upon  your death.
Debt Eraser. These tools help you create aWhether it is go to go your family, favorite
Rapid  Debtcharity, orlocal church, if no one knows
about  it,  "it  ain't  gonnahappen".
Reduction Plan which shows you how much to
pay on each debteach month in order to saveAs you start to accumulate wealth in excess
as much on interest charges aspossible andof $350,000, youmay want to consult an
pay  off  your  debts  as  soon  as possible.attorney about creating a trust. Atrust is an
entity that can own property and pass
These tools can help you systematicallythatproperty to anyone you name in your will.
eliminate your debtswhether you owe $1,000 orUsually the trustis designed to provide
$100,000. The key is to startliving belowincome to children from the assetsthat are
your means and start focusing on payingplaced  in  the  trust.
offyour  debt.
The trust can survive you so that your assets
It doesn't make much sense to be worriedand income maybe passed on to your children
about whether ornot your 401k earns 8 or 9%or next-of-kin withoutexcessive taxation and
this year, if you are paying 21%on yourlegal entanglements. Some stateswill take up
credit  card  debt.to 55% of your assets as taxes when you
passaway.
A third aspect that starts in the stability
category andtranscends to the next personalProtection also relates back to insurance.
finance level, growth, isthe concept ofNow it may betime to look at a multi-million
investing in yourself. By this I meanspendingdollar umbrella policy thatwill protect you
time to educate yourself in personalfrom lawsuits designed to part you and
financematters, as you are doing right nowyourwealth. You may now be a bigger target,
and spending timegaining more knowledge andso  purchase  a  suitof  armor.
improving your skills or evendeveloping new
ones.The management aspect comes into play where
you may start toconcern yourself with
As an employee, this can have a directtaxation, ownership, distribution ofincome
relation to who getslaid off during the nextand possibly endowments to charities or
round of cutbacks. If you havesome skills orothernon-profit  institutions.
have demonstrated some abilities that are
notpossessed by your co-workers and theseYou may hire a person or company to manage
skills make you amore valuable employee, youyour wealth, oryou may choose to do it
are  less  likely  to  get  thepink-slip.yourself. Most people who haveearned their
wealth through the "sweat of their brow"
Also while you are making yourself morehavealready become adept at managing their
valuable to yourcurrent employer, you areassets. Somecontinue to personally manage
also making yourself worth more tofuturetheir wealth because of theenjoyment or
employers. It is much easier to land a job ifchallenge  it  gives  them.
youhave some special skills that are in high
demand or even ifyou bring some specialOthers are ready to turn it over to a
knowledge or experience that youfellowtrustworthy  manager
job-seekers may have overlooked or failed to
investin.(who only gets paid a percentage of your
increase) andtravel the world, or sit on a
Being in the computer industry, I have tobeach and count the waves.
spend hours eachweek reading trade magazines,



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