 |
What Has Personal Finance Done For Me?
I wanted to talk to you a little about personal finance and what it has done for me. Basically in July I started to apply all the information that I learned online about this and I’ve had a pretty positive experience.
I actually knew about personal finance long before I started applying it. I read a lot of the rules and things that I should do, but never applied them. It wasn’t that I said “no”, I just assumed if I did it my way that things would just work out great. I was told to pay myself first, didn’t see that as necessary. I was told to actually have separate accounts for regular banking and savings, didn’t do that. There was a lot that I missed, but I finally sat down one day and just applied the rules, no matter how tedious I thought they were. The reward of doing this has been quite amazing and I wanted to share some of the things that really helped. Spending Journal I think this is one of the most valuable resources you can start doing. It’s not complicated at all. You can do this with extremely expensive software or you can just do it in a notebook or spreadsheet. I started out in a notebook and moved onto a spreadsheet. I like the spreadsheet over paper because it’s a lot easier to add in things. This is all you’re going to need. Date, Transaction, Credit, Debit. Those are the four columns you need. I’m not sure how many of you know basic accounting, but credit is when money is added and debit is when money is taken away. For example, if you got a check for $100, you would add $100 under the credit column. If you had a $100 bill to pay, you add it under the debit column. Easy right, but let me complicate it some more. You’re going to have two (or more) sections on your spreadsheet. One for daily stuff and one for your savings. If you were to save $100, you’d debit $100 from your daily stuff account and credit $100 to your savings account. I know this seems tedious, but it keeps things straight. Separate Accounts I used to think I could just leave all my money in one account and it would all just work itself out. So I’d have savings and daily stuff all sitting in the account. Guess what happened? It all got spent. You have to separate them because when you look at your account, psychologically, you’re going to always assume you have this extra cash. When your savings are in a separate savings account, you don’t see it, so you don’t end up spending it. Emergency Savings + Rainy Day Fund There is absolutely no reason you shouldn’t have an emergency savings account. Things will happen and you never know when you’ll end up broke. Typically you can see these things a head of time, but not always. You should always have some sort of safe guard. I recommend building one month worth of living expenses as fast as possible, than build toward 3-6 months at a more tolerable pace. Once you have that first month, you at least have a safety net. A rainy day fund is something that you have just in case. It’s not necessarily for wasting. I think of it more for something you might want to invest in. Maybe you want to start playing with stocks after the markets improve. Or maybe you want to go on a vacation. The point is that it needs to go to something worth something and not get slowly eaten away on stupid things. Pay Off Smaller Debts First This isn’t the most logical approach. The mathematically best way to approach debt repayment is making the minimums on all debt and overpaying on the highest interest. That’s how you’ll get out the fastest. The problem with that is it doesn’t really deal with the psychological effects. What you don’t understand is that you’re going to be throwing a significant amount of cash at a debt and you won’t see any gratification until it is gone. That can be tough to keep you going like that. When you pay off the smaller debts it gives you this “high” or gratification of paying it off. It’s something I’ve personally experienced and I’ve found it to be the most rewarding. Pay Off Credit Card Balance Each Month The obvious mathematical reason is that if you pay off your balance, you don’t pay interest on the purchases. But there’s another side of this. If you pay it off, you don’t go into debt. Simple as that. Calculate Net Worth To be honest I never thought knowing this number would help me in anyway. The number actually doesn’t have any value to me, it’s when I compare my net worth from month to month that I get the value. I’m psychologically driven to increase my net worth each month. It’s just what I do. I feel like I’m challenged to keep pushing the envelope and becoming worth more. Net Worth = Total Assets - Total Liabilities Use Windfalls to Increase Net Worth This is a big one I’ve really enjoyed benefiting from. Windfall is basically extra money that you ended up in. A lot of times this occurs as a tax refund check. Instead of taking that money and blowing it on crap, like I used to do, I went and put this toward my net worth. That means I put these windfalls into my savings or they go against debt. —- All I have to say is that I’m happy I got into this and I’m happy I followed all these stupid little rules because they help. They really do help. You should always have a plan for your money and it should be going to the best places possible, so you receive maximum benefit. October 8 2008
If you enjoyed this post, make sure you subscribe to my RSS feed!
|
Affiliate Marketing Xpert was created for people that want to live the Four Hour Workweek lifestyle.
Categories
|
|
|
|