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5 Things You Should Know About Personal Finance

5 Things You Should Know About Personal Finance

    Money.  Oh money.  It makes the world go ’round.  It’s one of the biggest reasons for divorce.  It either frees us or enslaves us.  It is the commodity of all commodities.  And yet, as much as many of us make, most of us know so little about how it works.  I blame our parents.  They should have known.  They should have taught us.  Well, either way, I’m about to give you a quick crash course in cash money 101, and how personal finances should work.  Buckle up and enjoy the ride.  Hopefully you’ll be enlightened.

    1. How a credit card works

    Credit cards are an interesting commodity.  They can either work for you or against you, depending on how much you know about them and how smart you are with them.  The biggest problem with credit cards, though, is that we gain access to them before we know enough about them.  Your parents should have taught you how they work, but sadly, many adults don’t even know exactly how they work.  This article should help.  Read it.  Then read it again.

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    2. How to create a budget

    Budgeting is something that people either love or hate to do.  Personally I hate it.  But I keep a general budget because it’s important to know where my money is going.  A friend of mine knows where every dollar he spends goes.  I’d rather divide my money into 2 different accounts, business and pleasure.  I give myself an “allowance” to do whatever I want with monthly, and the rest stays in my “business” account for bills and other living expenses.  Need a crash course on building a budget?  Check this out.

    3. The time value of money

    The time value of money is a simple principal to understand:  basically it states that any amount of money is worth more today than the same amount of money in the future due to it’s earning potential.  This means that if you have $100 to invest today, it’s worth more than $100 a year from now, because it could be gaining value through investments for a year.  Let’s assume you average 9% on your investments… Your $100 today will be worth $109 in a year, whereas getting $100 a year from now is only worth about $91, due to the value of money lost in the year.

    This is very important when you consider the next point…

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    4. Start investing early

    Take a look at this chart.  Basically what it states is that when Saver B starts investing earlier on in life, the time value of his money allows for gaining potential so much greater that even though Saver A invested more than 4 times the amount of Saver B, Saver B has gained more than $400k more than Saver A by retirement.

    Moral of the story?  If you start investing now, you’ll have much more than if you wait till you make more money, even if you invested more in the years to come.

    5. Let your money work for you

    We were all taught that it is important to gain a good education and to learn valuable skills to enter the job force and start a good career.  But here’s what few of us have learned:  more important than having a good job is learning how to make your money work for you.  Consider this: if you can save $500k, and you average 10% on your investment portfolio, you will gain $50k annually without doing anything other than having the money.  $2 million will earn you $200k per year (earning 10%).  $10 million will earn $1 million per year.  The more you invest, the more you’ll make, without lifting a finger (well, other than managing your money, of course).

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    Sure it’s important to have a good job.  But it’s even more important to be investing your money, no matter how much you’re making.  If the goal is financial security and freedom, it doesn’t take rocket science; just a little discipline and sacrifice early on.  And what you’ll gain is so much more than what you could buy today.

    One last note:  $1 at age 18 can’t get you more than a coke, or maybe a dollar menu burger.  But $1 at age 18 is worth $54 at age 60 (assuming 10% again).  Keep that in mind the next time you stop at Starbucks.  Your cup of joe is actually taking more than $150 out of your retirement fund.

    Spend wisely.

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    Photo Credit: aresauburn

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    Last Updated on January 2, 2019

    7 Steps For Making a New Year’s Resolution and Keeping It

    7 Steps For Making a New Year’s Resolution and Keeping It

    Are you keen to reinvent yourself this year? Or at least use the new year as a long overdue excuse to get rid of bad habits or pick up new ones?

    Yes, it’s that time of year again. The time of year when we feel as if we have to turn over a new leaf. The time when we misguidedly imagine that the arrival of a new year will magically provide the catalyst, motivation and persistence we need to reinvent ourselves.

    Traditionally, New Year’s Day is styled as the ideal time to kick start a new phase in your life and the time when you must make your all important new year’s resolution. Unfortunately, the beginning of the year is also one of the worst times to make a major change in your habits because it’s often a relatively stressful time, right in the middle of the party and vacation season.

    Don’t set yourself up for failure this year by vowing to make huge changes that will be hard to keep. Instead follow these seven steps for successfully making a new year’s resolution you can stick to for good.

    1. Just pick one thing

    If you want to change your life or your lifestyle don’t try to change the whole thing at once. It won’t work. Instead pick one area of your life to change to begin with.

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    Make it something concrete so you know exactly what change you’re planning to make. If you’re successful with the first change you can go ahead and make another change after a month or so. By making small changes one after the other, you still have the chance to be a whole new you at the end of the year and it’s a much more realistic way of doing it.

    Don’t pick a New Year’s resolution that’s bound to fail either, like running a marathon if you’re 40lbs overweight and get out of breath walking upstairs. If that’s the case resolve to walk every day. When you’ve got that habit down pat you can graduate to running in short bursts, constant running by March or April and a marathon at the end of the year. What’s the one habit you most want to change?

    2. Plan ahead

    To ensure success you need to research the change you’re making and plan ahead so you have the resources available when you need them. Here are a few things you should do to prepare and get all the systems in place ready to make your change.

    Read up on it – Go to the library and get books on the subject. Whether it’s quitting smoking, taking up running or yoga or becoming vegan there are books to help you prepare for it. Or use the Internet. If you do enough research you should even be looking forward to making the change.

    Plan for success – Get everything ready so things will run smoothly. If you’re taking up running make sure you have the trainers, clothes, hat, glasses, ipod loaded with energetic sounds at the ready. Then there can be no excuses.

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    3. Anticipate problems

    There will be problems so make a list of what they’ll be. If you think about it, you’ll be able to anticipate problems at certain times of the day, with specific people or in special situations. Once you’ve identified the times that will probably be hard work out ways to cope with them when they inevitably crop up.

    4. Pick a start date

    You don’t have to make these changes on New Year’s Day. That’s the conventional wisdom, but if you truly want to make changes then pick a day when you know you’ll be well-rested, enthusiastic and surrounded by positive people. I’ll be waiting until my kids go back to school in February.

    Sometimes picking a date doesn’t work. It’s better to wait until your whole mind and body are fully ready to take on the challenge. You’ll know when it is when the time comes.

    5. Go for it

    On the big day go for it 100%. Make a commitment and write it down on a card. You just need one short phrase you can carry in your wallet. Or keep it in your car, by your bed and on your bathroom mirror too for an extra dose of positive reinforcement.

    Your commitment card will say something like:

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    • I enjoy a clean, smoke-free life.
    • I stay calm and in control even under times of stress.
    • I’m committed to learning how to run my own business.
    • I meditate daily.

    6. Accept failure

    If you do fail and sneak a cigarette, miss a walk or shout at the kids one morning don’t hate yourself for it. Make a note of the triggers that caused this set back and vow to learn a lesson from them.

    If you know that alcohol makes you crave cigarettes and oversleep the next day cut back on it. If you know the morning rush before school makes you shout then get up earlier or prepare things the night before to make it easier on you.

    Perseverance is the key to success. Try again, keep trying and you will succeed.

    7. Plan rewards

    Small rewards are great encouragement to keep you going during the hardest first days. After that you can probably reward yourself once a week with a magazine, a long-distance call to a supportive friend, a siesta, a trip to the movies or whatever makes you tick.

    Later you can change the rewards to monthly and then at the end of the year you can pick an anniversary reward. Something that you’ll look forward to. You deserve it and you’ll have earned it.

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    Whatever your plans and goals are for this year, I’d do wish you luck with them but remember, it’s your life and you make your own luck.

    Decide what you want to do this year, plan how to get it and go for it. I’ll definitely be cheering you on.

    Are you planning to make a New Year’s resolution? What is it and is it something you’ve tried to do before or something new?

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