| The subject of personal finance is very broad, but as | | | | learning just five years ago, Iwould have missed out |
| abeginning, I would like to discuss what I consider | | | | on the Internet revolution, email, websites and the |
| thefoundation of personal finance: security. | | | | majority of the income I now enjoy. |
| Security | | | | Keeping myself informed and up to date takes time |
| Security to me means that I am prepared for the | | | | andresources, but it helps me protect my current |
| "hit by abus" scenario. | | | | income andexpand my skills to help me earn income |
| I have life insurance to provide for my wife and | | | | in other areas. |
| children. | | | | This increases my stability by allowing me to not |
| Health, disability, auto and home insurance policies | | | | have torely on one client, employer or source of |
| alsoprovide me additional protection in their | | | | income. A chairwith four legs will always be more |
| respective areas. | | | | stable than a stool withonly three. |
| I also have a list of where these policies are, who | | | | Growth |
| myagents are, phone numbers and basic policy | | | | The next level of personal finance, as I alluded to |
| information | | | | before,is growth. |
| (#s, amounts, costs, etc.) I keep this information | | | | Once you are secure and stable, you can begin to |
| both in afile at my house and in a safety deposit box | | | | think aboutbuilding your wealth. Not that you have to |
| at the bank (afriends home will also work - think: | | | | figure out howto become the next Bill Gates or |
| "house burns down"scenario). Also my wife and my | | | | Warren Buffet. But youhave to start building the |
| brother and sister-in-lawwho live nearby also know | | | | "nest-egg" that you will rely onwhen you retire. |
| where these things are. | | | | And don't think that Social Security has you covered, |
| I also try to maintain an emergency fund of cash in a | | | | orthat your 401k will grow back to what it was a |
| bankaccount or money market account (with checks) | | | | couple yearsago. Or that your current employer is |
| so that I amprepared for a financial disaster, layoff, | | | | going to re-institutethe generous pension plans of |
| or naturaldisaster. It took several years to build up | | | | yesteryear. 401ks are muchcheaper to administer and |
| this cash fund. | | | | you, the employee, take the hitwhen the market |
| I started with a goal to have enough cash for 6 | | | | goes down, not the employer. |
| months of mynormal financial needs (mortgage, food, | | | | My father is nearing retirement age and I think he |
| insurance,transportation, etc.). Now I am trying for 12 | | | | has agood plan. He has done some research and |
| months'worth. I do this by saving a little each month, | | | | estimated what hisexpenses are going to be when |
| and | | | | he is retired. He then took alook at his potential |
| "investing" a portion of all "found" money | | | | sources of income during hisretirement. |
| (gifts,inheritances, tax returns, anything unexpected). | | | | He figured that Social Security would cover about a |
| I have a will and update it each year around New | | | | third ofwhat he wanted to live on. Only a third! And |
| Year's toreflect any changes in my life during the | | | | he has workedhis entire life. Would you like to |
| past year (newchildren, new home or business, etc.). | | | | instantly have to liveon only one third of what you |
| Most people don'tneed an extensive will, the forms | | | | currently make? Retirement issuppose to be the |
| you buy at your officesupply store will do. But in | | | | golden years, so where's the gold? |
| some states if you die withoutone, watch out. What | | | | Luckily throughout his career, my father has worked |
| happens to your money and even yourchildren could | | | | forcompanies that have had pension plans and he had |
| be entirely up to some state or courtappointed | | | | worked longenough at each company to be eligible |
| official. | | | | for some pensionmoney. This is rare these days |
| Stability | | | | because today the averageworker will change jobs |
| The next level of personal finance is stability. | | | | and companies at least five timesduring his/her |
| Stability to me means that first of all I live within | | | | career. Also, as I mentioned before,companies are |
| mymeans. I don't spend more than I earn. Otherwise | | | | switching to lower cost 401k plans that do |
| I amspending my savings, investments, emergency | | | | notguarantee you any fixed payments. |
| money, orgetting into debt. I have a lot of debt, but | | | | In my father's situation, his pension money would |
| most of it isreal estate which is producing some | | | | coveranother third of the retirement income he |
| income. I try to avoidcredit card debt and purchase | | | | wanted. So now hehad to either figure out where |
| everything with money Ialready have. I don't buy | | | | the last third was going tocome from, or start |
| things expecting that next month | | | | cutting out expenses during retirement,like not visiting |
| I will have more money or I will get a big raise | | | | his children so much. None of us likedthe sound of |
| orpromotion. You can't sell me a car based on a | | | | that. |
| monthlypayment amount; I want to know the final | | | | So my father started learning about the stock |
| price! | | | | market andinvesting in stocks and mutual funds. He |
| In order to make sure that I am living within my | | | | made a plan forgrowing his wealth and then educated |
| means, Icreated a simple budget and I track my | | | | himself as to how hecould accomplish his plan. |
| expenses using Simple | | | | I wish I could say that he is doing better than he is, |
| Joe's Expense Tracker. I can tell how much I have | | | | butluckily he has some time still to put his plan into |
| spent ineach budget category and I know when to | | | | actionand ride out any market downturns. (He can do |
| keep a closer eye oncertain types of expenses, or | | | | this becausehe has the security of insurance and |
| when and where I can cutexpenses and what I can | | | | emergency money, andthe stability of little debt and |
| live without in order to stay withinmy budget. | | | | a strong set of skills.) |
| Counting pennies is pretty tedious, but trackingwhere | | | | By learning about how stocks, bonds, mutual funds, |
| the dollars go can be eye-opening. | | | | indexfunds, options, futures, commodities, real estate |
| Another aspect of stability is avoiding or eliminating | | | | and otherfinancial tools work you lay the foundation |
| debt. | | | | for growing yourwealth. You may start with just |
| Debt in itself is a form of stability; you always have | | | | $100 in a bank CD, but asyou learn more and |
| tomake those payments until it is all paid off. | | | | become more sophisticated, you can investin more |
| Some recent reports show that the average | | | | and more opportunities. |
| American is $7,000 | | | | You will learn about how risk and reward are related, |
| - $20,000 in debt. Most of it is consumer debt: | | | | thatas the risk increases so does the size of the |
| creditcards, store accounts, rent-to-own, auto loans, | | | | potentialreward. Just like at the race track, you'll |
| etc. Andthose types of consumer debt usually charge | | | | make more onthe long shot, but the odds are against |
| a higherinterest rate than any savings account, CD, | | | | it. Also you canlearn how to tilt the odds in your |
| or money marketaccount; even more than most | | | | favor and protectyourself against risk. |
| high-flying risky investments. | | | | For those who are just starting out in the growth |
| This means that $1,000 in debt at 18% is costing you | | | | phase orwho want to dabble a bit before completing |
| 9 timeswhat your $1,000 savings account at 2% is | | | | the other levelsof personal finance, my suggestion |
| producing. | | | | would be to look intoindex mutual funds. Especially |
| Consumer debt is a dangerous spiral that is very hard | | | | no-load index funds (noinitial/sales fee). |
| to getout of. | | | | These funds are made up of the same stocks that |
| The first problem is, as mentioned before, living | | | | make up thepopular market indexes like the Dow |
| withinyour means. Don't get further into debt to | | | | Jones, S&P and |
| support anextravagant lifestyle. Or even if you are | | | | NASDAQ100. The costs are low because |
| frugal, if youare using credit cards and debt to | | | | management is simpleand as a mutual fund you can |
| finance your purchases,you either need to stop | | | | invest a little at a time. |
| purchasing luxury items or find away to increase your | | | | Also they are easy to follow since you see them on |
| income to support thesepurchases/payments. | | | | all thenews shows and in the newspaper. |
| You may even have to lower your standard-of-living | | | | Protection and Management |
| becauseyou have racked up considerable debt and | | | | The final level of personal finance is the protection |
| need to free upsome money to pay it down. But | | | | andmanagement of your wealth. Most people never |
| don't wait to start. Thoseminimum payments are | | | | develop wealthenough to need this level. But some |
| often designed to keep you paying 18%interest for | | | | of the concepts can beapplied to any amount of |
| 40 years! That's longer than most home loans. | | | | wealth you possess, $10,000 to |
| You could even end up paying more than 10 times | | | | $10,000,000. |
| the originalcost of the item just in interest payments. | | | | Part of the protection harks back to your will as |
| Is that newstereo really worth that much? | | | | wediscussed on the first personal finance level: |
| To help people get themselves out of debt we | | | | security. |
| created the | | | | With any significant wealth or valuable asset (your |
| "Pay Off My Debts" tool in Simple Joe's Money Tools. | | | | home,car, heirlooms, 401k, IRA, business, etc.) you |
| It isalso available as a stand-alone product called | | | | will wantsome way of disposing of that asset upon |
| Simple Joe's | | | | your death. |
| Debt Eraser. These tools help you create a Rapid | | | | Whether it is go to go your family, favorite charity, |
| Debt | | | | orlocal church, if no one knows about it, "it ain't |
| Reduction Plan which shows you how much to pay | | | | gonnahappen". |
| on each debteach month in order to save as much | | | | As you start to accumulate wealth in excess of |
| on interest charges aspossible and pay off your | | | | $350,000, youmay want to consult an attorney |
| debts as soon as possible. | | | | about creating a trust. Atrust is an entity that can |
| These tools can help you systematically eliminate | | | | own property and pass thatproperty to anyone you |
| your debtswhether you owe $1,000 or $100,000. The | | | | name in your will. Usually the trustis designed to |
| key is to startliving below your means and start | | | | provide income to children from the assetsthat are |
| focusing on paying offyour debt. | | | | placed in the trust. |
| It doesn't make much sense to be worried about | | | | The trust can survive you so that your assets and |
| whether ornot your 401k earns 8 or 9% this year, if | | | | income maybe passed on to your children or |
| you are paying 21%on your credit card debt. | | | | next-of-kin withoutexcessive taxation and legal |
| A third aspect that starts in the stability category | | | | entanglements. Some stateswill take up to 55% of |
| andtranscends to the next personal finance level, | | | | your assets as taxes when you passaway. |
| growth, isthe concept of investing in yourself. By this | | | | Protection also relates back to insurance. Now it may |
| I meanspending time to educate yourself in personal | | | | betime to look at a multi-million dollar umbrella policy |
| financematters, as you are doing right now and | | | | thatwill protect you from lawsuits designed to part |
| spending timegaining more knowledge and improving | | | | you and yourwealth. You may now be a bigger |
| your skills or evendeveloping new ones. | | | | target, so purchase a suitof armor. |
| As an employee, this can have a direct relation to | | | | The management aspect comes into play where you |
| who getslaid off during the next round of cutbacks. | | | | may start toconcern yourself with taxation, |
| If you havesome skills or have demonstrated some | | | | ownership, distribution ofincome and possibly |
| abilities that are notpossessed by your co-workers | | | | endowments to charities or othernon-profit |
| and these skills make you amore valuable employee, | | | | institutions. |
| you are less likely to get thepink-slip. | | | | You may hire a person or company to manage your |
| Also while you are making yourself more valuable to | | | | wealth, oryou may choose to do it yourself. Most |
| yourcurrent employer, you are also making yourself | | | | people who haveearned their wealth through the |
| worth more tofuture employers. It is much easier to | | | | "sweat of their brow" havealready become adept at |
| land a job if youhave some special skills that are in | | | | managing their assets. Somecontinue to personally |
| high demand or even ifyou bring some special | | | | manage their wealth because of theenjoyment or |
| knowledge or experience that youfellow job-seekers | | | | challenge it gives them. |
| may have overlooked or failed to investin. | | | | Others are ready to turn it over to a trustworthy |
| Being in the computer industry, I have to spend | | | | manager |
| hours eachweek reading trade magazines, exploring | | | | (who only gets paid a percentage of your increase) |
| web sites, andreading emailed newsletters to keep | | | | andtravel the world, or sit on a beach and count the |
| abreast of what is newin my field. If I stopped | | | | waves. |