Ways to Master Your Money
Set Specific Goals
Saving tends to be easier when you have a certain purpose
in mind: Saving for your first house, retirement at a certain
age, a childs college education, or even a trip around the
world. The important thing is to be specific.
develop a sound plan, these goals must have both a time frame
and a dollar amount. Once you have listed and quantified your
goals, you need to prioritize them. You may find, for example,
that saving for a new home is more important than buying a new
your objective, be specific. Figure out how many weeks or months
there are between now and when you want to reach your target.
Divide the estimated cost by the number of weeks or months. Thats
how much youll need to save each week or month to have enough
money set aside. Remember, a goal is a dream with a deadline.
Pay Yourself First
Save and invest 5-10% of your gross annual income. Of course,
this can be much harder than it sounds. If youre currently
living from paycheck to paycheck without any real opportunity
to get ahead, begin by creating a solid budget after tracking
all monthly expenses.
you figure out how you can control your discretionary spending,
you can then redirect the money into a savings account. For many
people, a good way to start saving regularly is to have a small
amount transferred automatically from their paycheck to a savings
account or mutual fund. The idea: If you dont see it, you
dont miss it.
Maintain An Emergency Fund
Before you commit your newfound savings to volatile and hard-to-reach
investments, make sure you have at least three to six months
worth of expenses saved in an emergency fund to see yourself through
difficult times. Keeping it liquid will ensure that you dont
have to sell investments when their prices are down, and guarantee
that you can always get to your money quickly.
you have trouble deciding how much you need to keep on hand, begin
by considering the standard expenses you have in a month, and
then estimate all the expenses you might have in the future (possible
insurance deductibles and other emergencies). Generally, if you
spend a larger portion of your income on discretionary expenses
that you could cut easily in a financial crisis, the less money
you need to keep on hand in your emergency account. If you have
dependents, youd want to keep more money in your emergency
fund to offset the greater risk.
Pay Off Your Credit Card Debt
If youre trying to save while carrying a large credit card
balance at, say, 19.8%, realize that paying off the debt is a
guaranteed return of nearly 20%. Once you pay off your credit
cards, use them only for convenience, and pay off the balance
each month. If you tend to run up credit card charges, get rid
of the plastic and go back to using cash.
Insure Your Family Adequately
A major lawsuit, unexpected illness or accident can be financially
devastating if you lack proper insurance. The key to insurance
is to cover only financial losses so large that you could not
cope with them and remain financially fit. If someone is dependent
on your income, you need adequate life insurance. Long-term disability
coverage is important as long as you need employment income. Also,
be sure to carry adequate liability coverage on your home and
save on annual premiums, it might be feasible for you to raise
your insurance deductible, or eliminate dual coverages. And whenever
purchasing insurance – life, home, disability, or auto –
be sure to shop around, and buy only from a reputable firm.
Buy A Home
Since 1968, the median price of single-family homes has gone up
300%; many houses still appreciate at a rate of 6% to 8% annually.
Further, homeownership entitles you to major tax breaks. Interest
on first and second home mortgages is fully deductible, meaning
Uncle Sam helps subsidize your property investment. Additionally,
the equity in your home can be a great source of retirement income.
a reverse mortgage, homeowners can access the equity in their
home without having to sell, and have the option of receiving
monthly income for life (or chosen term) or opening up a credit
line against the homes value.
Take Advantage Of Tax-deferred Investments
If your employer has a tax-deferred investment plan like a 401(k)
or 403(b), use it. Often, employers will match your investment.
Even if they dont, no taxes are due on your contributions
or earnings until you retire and begin withdrawing the funds.
Tax-deferred savings means that your investments can grow much
faster than they would otherwise. The same is true of IRAs, although
the maximum amount you can invest annually in an IRA is substantially
less than what you can put in a 401(k) or 403(b).
Diversify Your Investments
When it comes to managing risk to maximize your return, it pays
to diversify. First you need to diversify among the three major
asset classes: cash, stocks and bonds. Once you have decided on
an allocation strategy among these three investment classes, it
is important to diversify within each asset. This means buying
multiple stocks within a variety of industries and holding bonds
of varying maturities. Simply put, dont put all your eggs
in one basket. Also, dont make the mistake of putting most
or all of your money in safe investments like savings
accounts, CDs and money market funds. Over the long haul, inflation
and taxes will devour the purchasing power of your money in these
investments involve some trade-off between risk and return. Diversification
reduces unnecessary risk by spreading your money among a variety
of investments. Aside from diversification, the single most effective
strategy is to invest continuously over time, with a long-term
Write A Will
The simplest way to ensure that your funds, property and personal
effects will be distributed according to your wishes is to prepare
a will. A will is a legal document that ensures that your assets
will be given to family members or other beneficiaries you designate.
Having a will is especially important if you have young children
because it gives you the opportunity to designate a guardian for
them in the event of your death. Although wills are simple to
create, about half of all Americans die intestate, or without
a will. With no will to indicate your wishes, the court steps
in and distributes your property according to the laws of your
state. If you have no apparent heirs and die without a will, its
even possible that the state may claim your estate.
begin, take an inventory of your assets, outline your objectives
and determine to which friends and family you wish to pass your
belongings. Then, when drafting a will, be sure to include the
following: name a guardian for your children, name an executor,
specify an alternate beneficiary and use a residuary clause which
typically reads I give the remainder of my estate to ...
Once your will is drafted, you wont have to think about
it again unless your wishes or your financial situation change