| The subject of personal finance is very | | | | exploring web sites, andreading emailed |
| broad, but as abeginning, I would like to | | | | newsletters to keep abreast of what is newin |
| discuss what I consider thefoundation of | | | | my field. If I stopped learning just five |
| personal finance: security. | | | | years ago, Iwould have missed out on the |
| | | | Internet revolution, email, websites and the |
| Security | | | | majority of the income I now enjoy. |
| | | | |
| Security to me means that I am prepared for | | | | Keeping 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 wife | | | | earn income in other areas. |
| and children. | | | | |
| | | | This increases my stability by allowing me to |
| Health, disability, auto and home insurance | | | | not have torely on one client, employer or |
| policies alsoprovide me additional protection | | | | source 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 and | | | | Growth |
| basic policy information | | | | |
| | | | The next level of personal finance, as I |
| (#s, amounts, costs, etc.) I keep this | | | | alluded to before,is growth. |
| information both in afile at my house and in | | | | |
| a safety deposit box at the bank (afriends | | | | Once you are secure and stable, you can begin |
| home will also work - think: "house burns | | | | to think aboutbuilding your wealth. Not that |
| down"scenario). Also my wife and my brother | | | | you have to figure out howto become the next |
| and sister-in-lawwho live nearby also know | | | | Bill 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 account | | | | And don't think that Social Security has you |
| (with checks) so that I amprepared for a | | | | covered, orthat your 401k will grow back to |
| financial disaster, layoff, or | | | | what it was a couple yearsago. Or that your |
| naturaldisaster. It took several years to | | | | current 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 for | | | | employee, take the hitwhen the market goes |
| 6 months of mynormal financial needs | | | | down, not the employer. |
| (mortgage, food, insurance,transportation, | | | | |
| etc.). Now I am trying for 12 months'worth. I | | | | My father is nearing retirement age and I |
| do this by saving a little each month, and | | | | think he has agood plan. He has done some |
| | | | research and estimated what hisexpenses are |
| "investing" a portion of all "found" money | | | | going to be when he is retired. He then took |
| (gifts,inheritances, tax returns, anything | | | | alook at his potential sources of income |
| unexpected). | | | | during hisretirement. |
| | | | |
| I have a will and update it each year around | | | | He figured that Social Security would cover |
| New Year's toreflect any changes in my life | | | | about a third ofwhat he wanted to live on. |
| during the past year (newchildren, new home | | | | Only a third! And he has workedhis entire |
| or business, etc.). Most people don'tneed an | | | | life. Would you like to instantly have to |
| extensive will, the forms you buy at your | | | | liveon only one third of what you currently |
| officesupply store will do. But in some | | | | make? Retirement issuppose to be the golden |
| states if you die withoutone, watch out. What | | | | years, so where's the gold? |
| happens to your money and even yourchildren | | | | |
| could be entirely up to some state or | | | | Luckily throughout his career, my father has |
| courtappointed official. | | | | worked forcompanies that have had pension |
| | | | plans and he had worked longenough at each |
| Stability | | | | company to be eligible for some pensionmoney. |
| | | | This is rare these days because today the |
| The next level of personal finance is | | | | averageworker 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 I | | | | switching to lower cost 401k plans that do |
| live within mymeans. I don't spend more than | | | | notguarantee you any fixed payments. |
| I earn. Otherwise I amspending my savings, | | | | |
| investments, emergency money, orgetting into | | | | In my father's situation, his pension money |
| debt. I have a lot of debt, but most of it | | | | would 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 purchase | | | | figure out where the last third was going |
| everything with money Ialready have. I don't | | | | tocome from, or start cutting out expenses |
| buy things expecting that next month | | | | during retirement,like not visiting his |
| | | | children so much. None of us likedthe sound |
| I will have more money or I will get a big | | | | of that. |
| raise orpromotion. You can't sell me a car | | | | |
| based on a monthlypayment amount; I want to | | | | So 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 within | | | | and then educated himself as to how hecould |
| my means, Icreated a simple budget and I | | | | accomplish 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 I | | | | than he is, butluckily he has some time still |
| have spent ineach budget category and I know | | | | to put his plan into actionand ride out any |
| when to keep a closer eye oncertain types of | | | | market downturns. (He can do this becausehe |
| expenses, or when and where I can cutexpenses | | | | has the security of insurance and emergency |
| and what I can live without in order to stay | | | | money, andthe stability of little debt and a |
| withinmy budget. Counting pennies is pretty | | | | strong 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 or | | | | commodities, 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; you | | | | bank CD, but asyou learn more and become more |
| always have tomake those payments until it is | | | | sophisticated, you can investin more and more |
| all paid off. | | | | opportunities. |
| | | | |
| Some recent reports show that the average | | | | You will learn about how risk and reward are |
| American is $7,000 | | | | related, thatas the risk increases so does |
| | | | the size of the potentialreward. Just like at |
| - $20,000 in debt. Most of it is consumer | | | | the 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 types | | | | canlearn how to tilt the odds in your favor |
| of consumer debt usually charge a | | | | and protectyourself against risk. |
| higherinterest rate than any savings account, | | | | |
| CD, or money marketaccount; even more than | | | | For 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% is | | | | finance, my suggestion would be to look |
| costing you 9 timeswhat your $1,000 savings | | | | intoindex mutual funds. Especially no-load |
| account at 2% is producing. | | | | index funds (noinitial/sales fee). |
| | | | |
| Consumer debt is a dangerous spiral that is | | | | These 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 further | | | | NASDAQ100. 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 using | | | | can invest a little at a time. |
| credit cards and debt to finance your | | | | |
| purchases,you either need to stop purchasing | | | | Also they are easy to follow since you see |
| luxury items or find away to increase your | | | | them on all thenews shows and in the |
| income to support thesepurchases/payments. | | | | newspaper. |
| | | | |
| You may even have to lower your | | | | Protection and Management |
| standard-of-living becauseyou have racked up | | | | |
| considerable debt and need to free upsome | | | | The final level of personal finance is the |
| money to pay it down. But don't wait to | | | | protection andmanagement of your wealth. Most |
| start. Thoseminimum payments are often | | | | people never develop wealthenough to need |
| designed to keep you paying 18%interest for | | | | this 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 we | | | | finance 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-alone | | | | business, etc.) you will wantsome way of |
| product called Simple Joe's | | | | disposing of that asset upon your death. |
| | | | |
| Debt Eraser. These tools help you create a | | | | Whether it is go to go your family, favorite |
| Rapid Debt | | | | charity, 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 save | | | | As you start to accumulate wealth in excess |
| as much on interest charges aspossible and | | | | of $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 systematically | | | | thatproperty to anyone you name in your will. |
| eliminate your debtswhether you owe $1,000 or | | | | Usually the trustis designed to provide |
| $100,000. The key is to startliving below | | | | income to children from the assetsthat are |
| your means and start focusing on paying | | | | placed in the trust. |
| offyour debt. | | | | |
| | | | The trust can survive you so that your assets |
| It doesn't make much sense to be worried | | | | and 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 your | | | | legal 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 personal | | | | Protection also relates back to insurance. |
| finance level, growth, isthe concept of | | | | Now it may betime to look at a multi-million |
| investing in yourself. By this I meanspending | | | | dollar umbrella policy thatwill protect you |
| time to educate yourself in personal | | | | from lawsuits designed to part you and |
| financematters, as you are doing right now | | | | yourwealth. You may now be a bigger target, |
| and spending timegaining more knowledge and | | | | so 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 direct | | | | taxation, ownership, distribution ofincome |
| relation to who getslaid off during the next | | | | and possibly endowments to charities or |
| round of cutbacks. If you havesome skills or | | | | othernon-profit institutions. |
| have demonstrated some abilities that are | | | | |
| notpossessed by your co-workers and these | | | | You may hire a person or company to manage |
| skills make you amore valuable employee, you | | | | your 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 more | | | | havealready become adept at managing their |
| valuable to yourcurrent employer, you are | | | | assets. Somecontinue to personally manage |
| also making yourself worth more tofuture | | | | their wealth because of theenjoyment or |
| employers. It is much easier to land a job if | | | | challenge it gives them. |
| youhave some special skills that are in high | | | | |
| demand or even ifyou bring some special | | | | Others are ready to turn it over to a |
| knowledge or experience that youfellow | | | | trustworthy 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 to | | | | beach and count the waves. |
| spend hours eachweek reading trade magazines, | | | | |