• Rule #1 – To earn money from money

The only way to escape becoming a wage slave for the rest of your life is to set aside savings. The profit on your savings can be used to increase your lifestyle spending, reduce the number of years until you retire, or allow you to actually have any retirement at all. How are you doing so far toward saving and getting it to earn money for you?

Every dollar that you spend eliminates its ability to earn money for you in the future. I am not recommending that you stop eating at restaurants and going to movies, I am recommending that you use some common sense, like looking at your four biggest expenses over the last few months and aggressively finding a way to reduce them.

The biggest obstacle for the first rule is personal debt of any kind (other than a mortgage for your home) or a lease of any kind. Every personal debt that you incur reduces your net worth which could have been working for you over your life time. Acquiring personal debt is exactly like putting a large hole in your wallet. In the money-game, a huge transfer of wealth occurs between the ‘Haves’ and the ‘Have-Nots’ over the words, “I can afford that monthly payment.” Here is a hint: the “Have-Nots” are the ones who make that statement. So please don’t ever look at whether you can afford a monthly payment to make a purchase; pay in cash after you’ve saved for the item.

Everything that you buy with a 0%-interest payment plan must be over-priced. Behind the scenes, your payment contract is sold to a lender with an interest rate, and retailers don’t do this without building-in an acceptable profit for themselves. Ask retailers how much the item will cost if you pay in full, and you could get a lower price.

• Rule #2 – Always keep your finances under control

The first step in losing financial control and spiraling into debt and money problems is simply not dealing with personal finances. Tips to keep your finances under control :

• Prepare for catastrophic financial accidents with health, life, disability, and auto insurance.
• Plan and save before you buy something.
• Create a balance sheet for yourself at least once a year to see how you are progressing.
• Pay every bill on time, or contact the creditor to tell them what is going on and make a partial payment.
• If you are temporarily unable to handle any of this, ask for some help immediately and find someone trustworthy who will do this for you.

The most common source of financial trouble is a trauma in your life. This can be a health problem (large expenses or unable to work), an emotional problem (divorce or loss of loved one), or a financial problem (losing a job, cut in pay, relocation, unexpected expenses). Whichever the source may be, it leads to three emotional problems: the first is denial, the second is being overwhelmed, and the third is hopelessness. Denial causes people to not open their mail and continue spending as usual, and being overwhelmed paralyzes people from getting assistance and dealing with the situation. For example, if you just lost a loved one, balancing your checkbook and paying bills is not high in your priorities. Unfortunately, tiny amounts of debt grow with interest and penalties into seemingly insurmountable mountains of debt; leaving you with loathsome options such as bankruptcy, poor credit, declining lifestyle spending, and added stress that you bring to relationships and work.

• Rule #3 – Pay attention to the finances of the people around you

Whether they are relatives, friends, or co-workers, it important to pay attention to the financial condition of the people with whom you spend the most time, because these people have the most impact on your financial life. Do they consistently follow the first two rules of the money game? Do they earn about the same money as you? If the answer to either of those is “no”, then I recommend that you start spending a little less time with them; and this is why. If they don’t consistently follow the first two rules, it is unlikely that you will either. You unconsciously model the people around you, and the more people you are exposed to that don’t follow the first two rules, the more likely that you will unwittingly follow them. No one thinks they are ‘trying to keep up with the Joneses’, but we all do it to some extent, and this is the mechanism. On the other hand, if they earn a lot more money than you, you may rack up a lot of debt trying to keep up with them (i.e. meeting them at their favorite expensive restaurant, joining them for another expensive vacation, buying a new car because yours is the junker among all of your friends, etc.) On the other hand, if most of your friends earn a lot less than you, you will turn into the group’s banker. For example, you’ll find yourself in the pattern of putting your credit card down to pay for dinner and they’ll all say they’ll pay you back later, but 50% of them never do; and they don’t mind taking advantage of you because, after all, you earn a lot more than they do. Or, you and your friends need to pay a deposit for renting a house and they expect you to write the checks because you have the money available and they do not.

The neighborhood that you live in also creates financial pressure to violate the first two financial goals. Your neighbors are likely to become friends (and I’ve already gone over this), but they also influence the size of your home, extent of your landscaping, price of furniture, and the size of your TV. So pay very close attention to the finances of your neighbors – if you don’t like how they are measuring up for first two rules, move somewhere more in alignment with your financial goals. If your family and friends, don’t measure up financially, find some additional people to spend time with that have financial habits that you’d like to emulate and learn from. It is much more difficult to follow the first two money rules when you are with the extremes from my own income. You’ll just find it easier to reach the next rule when the peer group that you hang out with aligns closer to your economic level.

• Rule #4 – Accelerate the other three rules

Add to your savings by increasing your income through advancing your career. It doesn’t matter whether you enjoy it; it is a means to an end – with the end being progress toward the fulfillment of rule #1. Increase the amount that you save by aggressively lowering four of your highest expenses. Start spending time with people that talk about investing money and are systematically building their wealth the fastest. The combination of all four of these rules will hopefully offer a next-step for you to take today to start getting more ‘wins’ in the money-game.

First, don’t spend time worrying about the decision. Worry does nothing. No one has ever had a bill paid by worrying. No one has gotten out of debt by worrying or made a million dollars by worrying. Worrying gets you nowhere.

Actually, too much worry can get you into trouble. People make rash decisions when they are desperate. And worrying can make you desperate for the first solution that comes along.

Instead, you need to set a certain amount of time aside during the day to think about your decision. When that time is up, you walk away and leave your thoughts there. It can be hard to do, but if you are truly working towards making a decision during your time, you should be able to leave it there for a while.

The decisions you have to make shouldn’t consume your entire life. That is no way to live.

Start by writing things down. This can be an effective tool for organizing your thoughts, comparing choices and getting a sense of the true situation. For some reason, when you see things on paper, they often look much differently. You are often able to leave things alone for a while and clear your mind if your thoughts are safely on paper.

For instance, if you are deciding whether or not to sell your home, you could make a few lists. Start with your selling of the home page. List what you gave for the home, including closing costs and an major improvements. Then write down how much you owe. How much do you expect to get for your home? Write down a few realistic numbers. Now you can see what your profits might be.

Then look at your options for after you sell your home. Are you looking at moving up? Calculate what your mortgage payment would be if you moved into a larger home. Then look at moving down. I know that idea may not make sense to you, but consider what having even less of a mortgage might mean to your finances. If you are in a financial pickle right now, a smaller mortgage might be helpful.

Put things down on paper. When you are in debt, this is one of the best ways to start looking at how you will deal with your debt.

Most importantly, decisions must be made. We make small ones every day. Large ones seem so much more important and take more time. But you can’t second guess your every decision. Once you make your decision, it is made. And you will deal with the consequences. Take your time, review the facts and use your calculator. Don’t just rush into things based on emotion. Remember, plans don’t always work out and you have to reassess the situation. But if you plan wisely and take your time, things will work out in the long run.

Here is a list of 4 easy steps to take when combining finances after marriage and determining your financial future.

Step #1 – Determine your net worth

Net worth is the difference between assets and liabilities. Make a list to figure out your net worth, make a list of all the things that you own and assign approximate values to each one. Then make a list of all your debts. Subtract these two numbers and you will have your net worth.

Step #2 – Family accounting

You will need to decide who is going to manage your accounting. Is one partner going to manage the finances or will this be a shared responsibility? Are you going to choose to handle the finances independently, if not you will need to create a system of whose going to pay the bills.

Step #3 -  Set goals

Statistics are showing that 95% of senior citizens can’t afford to retire. Set goals and start saving for your future today. Create short-term goals and long-term goals. Make sure when you set your goals that you are actually striving for them so they should be adjusted to your spending lifestyle.

Step #4 – Plan for adjusting your finances after marriage

Many couples get married without having a financial plan in mind. It’s very important to discuss your financial situation before tying the knot that way everything is out in the open. If you don’t want to deal with thinking of financial strategies, get help from a financial planner for any needed advice.

Increasing consumerism has given rise to the phenomenon of over expenditure by even an average earner and in turn has resulted in more and more people reeling under debt burden. The problem escalates because people care little about key aspects of personal finance.

• Credit Card

As one of main sources of personal finance, credit cards have become most popular and easier way of both taking finance and making expenditure. Every item purchased goes to the cardholder’s bill. Lack of cash often encourages consumers to swipe credit card more. This only results in debt accumulation. To minimize credit card debts, take precautions. It would save you lot of money if you use credit card only when there is no other alternative to it because if the dues are not cleared in time the credit card issuing company slaps high penalties. This worsens the debt problem. It is also advised to pick up the credit card company that charges the lowest possible interest rate. Your interest outgo must remain lower so that you save enough for other expenses and rainy days.

• Debit Card

Another way to managing personal finance is to prefer using debit card. You can spend only up to the amount you have in your account. Thus debit card keeps you away from overspending and resultant unnecessary loss of finance.

• Personal Loan

Personal loan is an effective source of personal finance. When opting for a personal loan, again, your concern should be to save as much as possible on cost of the loan. Personal loan makes you financially secure and stronger as you use the loan constructively. Avail it at lower interest rate so that you do not feel debt burden. The best way of bargaining for lower interest rate is to opt for secured personal loan. In this type of the loan any of the borrower’s property is placed as collateral with the loan provider. With the loan well secured, lenders are willing to reduce interest rate. Also, greater repayment term is offered so that monthly outgo towards installments is reduced to the comfort of the borrower.

• Saving Money

Saving money habit will help you meet finance in an emergency. Open a wealth account where your money grows into your largest net worth as the money is not spent but invested only. Make all efforts in lessening debt burden. For instance, pay extra principal amount towards car loan or credit card so that you do not accumulate debts and managing finance becomes easier.

After all, managing personal finance is about getting low finance cost and avoiding any debt burden to make life more enjoyable. Credit card and debit card should be used wisely and personal loan or any source of finance should be given thought in terms of low cost and managing finance.

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Accommodating a small rainy day fund should be a vital part of an individual’s financial goals. This is of high importance if you don’t already have readily available funds in your account for covering any unanticipated expenses. They provide financial security because they give you funds to fall back on if you become ill, or if you or your spouse loses your job, you incur large medical bills, or have an unexpected large bill such as a major car or home repair. You do not want to end up in a situation where you have to buy daily necessities on credit and end up payments on groceries you bought two years back on credit, with a further 10-18% interest on it.

Saving your money in a small account for emergencies is definitely a better alternative to taking a loan or cashing in your long-term investments. If you take a loan, there is the additional burden of paying interest. Encashment of your investments before maturity means not only will you lose out the interest, but also some part of the original investment. This will also set you back significantly in your overall financial plan.

Success at building an emergency fund depends on consistency of saving money on a regular basis, and resisting the urge to dip into this rainy day fund for non-emergencies. This money should be kept separate from the general savings account. Otherwise you will be tempted to dip into these monies even if you simply run over your budget at a certain point. A substantial part of this emergency fund account should be invested in low risk funds. This ensures that your investment does not lose its value in case you need the money. Also, it should be extremely liquid, to give you access to the cash easily and quickly if you need it.

The size of the special savings account will depend on your personal situation. It is prudent planning to have at least three to six months salary in the reserve in the event of a loss of job, medical emergency, short-term disability, etc. You will have to decide on an appropriate amount based on following factors:

• Your dependents and fixed monthly expenses. For examples, if you are single with no obligations, and have a reliable support system of friends or relatives during a financial crisis, you might not need a substantial amount stashed in this fund. This is opposed to someone who needs to pay nursing costs for his aging parents and supporting a young family. The more people you support, the more likely you are to have unexpected or unplanned costs.

• You should also take into account the degree of difficulty you would have in finding a new job if you lost the present one. In case of a two-income household, the contribution of both parties should be weighed while calculating how much you should keep aside.

The following calculator will help you estimate how much do you need for emergency fund.

Title:	How Much Do I Need For Emergencies?
Description:	Use this calculator to help determine how much you need to set aside monthly or as a lump sum to create an emergency fund.

You may not be able to gather your emergency fund money together at once. Treat it as a financial goal and add to the kitty over time. If you get a tax refund, put it in your special rainy day account. If you get the bonus at work, put part of it in your emergency fund. When your emergency fund is ready, you can live with a peace of mind for the future.

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Many young people live for today, they always spend all of their wages and enjoy their lives while they are still a young adult. They think that they still have many years to save, so why bother about saving money now which they could do later. In fact, when you start save your money matters.

A penny saved is a penny earned, but a penny saved today is a penny earning more.

It is important to start saving as soon as possible for events such as retirement due to the impact of compounding. If you start saving now you will need to save considerably less than if you wait a few years. Use this calculator to determine how much extra you will need to save if you wait 5 years.

Title:	Save Now vs Save Later
Description:	This calculator will show the additional amount you will need to save in order to reach your savings goal if you are waiting 5 years to begin your investment.

The advantages of saving money at your early age:

• The earlier you start once your earns some money, the easier it becomes your habits.

• The earlier you start, the lower amount you need to save monthly to reach your financial goals

• Your saved money can make you money more if you invest them in various investment models

• You would less get stressed about the future with healthy balance in your bank account.

I am sure that develop your savings earlier will also give you a peace of mind for the future and will help you to sleep easier at night.

With the following financial calculators you can set a goal of saving and plan the period of your saving to achieve your financial goals:

Title:	How Much Should I Save To Reach My Goal?
Description:	What are you saving for: a computer, car, boat, summer home, down payment? Use this calculator to determine what you need to save on a regular basis to have the funds ready when needed.

Title:	How Long Until My Savings Reach My Goal?
Description:	Compound interest can have a dramatic affect on the growth of a single deposit. Use this calculator to determine how many years an existing savings account will take to reach your stated objective.

For more financial calculator on savings plan, please refer our related article “Understanding And Developing A Savings Plan” to set a goal of saving and plan the period of your saving to achieve your financial goals.

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Have you ever wondered where your money goes every month? Have you ever been in a situation where you couldn’t afford to do things because your financial obligations are holding you back? If you are wondering the similar questions, perhaps you should take a look at your financial situation and assess your personal finance practices.

There are two categories of people in practicing their personal finance:

• Good personal finance management – those who spends within their income, plan for the future and solve financial problems as they arise.

• Poor personal finance management – those who pay more, does without and falls behind.

If you find yourself in the second category, you can do something about it. You can learn to take charge of your finances by planning your personal finances.

Planning your personal finances does not always come naturally, and even if you are just beginning to take your financial matters seriously, then you likely need a few personal finance tips.

• Evaluate your current financial situation.

One of the most important goals for most people is financial independence. Collect accurate information about your personal financial situation. Calculate your net worth which includes the real estate, saving and retirement accounts, and all other assets. This will help you decide how much money you can set aside for meeting future needs and goals.

• A basic personal finance tip is to make a budget.

A personal finance budget is information made up of your income and expenses and the more accurate this information is, the more likely you are be able to meet your goals and realize your dreams. A personal finance budget should be made for at most one year at a time and include a list of your monthly expenses.

• All expenses must be included.

To be sure of that go through all your paid bills, check register and credit card receipts to find expenditures that recur every month and expenditures that happen less frequently. Personal finance budgeting requires some small sacrifices. To be able to make good personal financial decisions and set priorities, you must know where your money is actually going. Start your budget and accomplish your goals.

• Get an electronic bill pay.

This is a very convenient way to pay your bills. You pay them electronically, by direct withdrawal from your bank account. The transaction is processed immediately. You can even link your bill pay service to your personal finance budget, so that your expenditures are automatically entered in the appropriate category. Personal financial management can be really easy.

• Make an investment and finance plan.

After the fundamental state of your personal financial security has been established, it is time to make the more prosperous part of your personal financial life. You need to make a personal finance plan of what you really want in life that money can buy. Your personal financial plan can be as simple or as detailed as you want it to be. Find out how to finally start to implement this plan and get the money to finance it. This is the long term part of your financial. This journey is the most interesting and exciting part of personal financing you can lead you to financial freedom.

By following these simple personal finance tips, you can prepare for a secure personal financial future. When you take control with your money, you do not have to worry about debt taking control of you.

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Saving money is not easy for some people, it is something that you can easily forget or ignore. We all too often are saying that there is not enough money to put into savings and we will do it later. But if there is not enough money to put into savings, is there enough money if there is an emergency. By having a savings plan, you can keep an emergency from destroying your finances.

Savings can be anything from a simple savings account to bonds and retirement plans. You may be saving for emergencies, college fund, new home or retirement. Or even for all of them. Whatever your goal is, there is a savings plan that will fit your needs. Despite, not all types of savings are going to work for you. You have to find the plan that fits your own personal financial needs.

The beauty of saving money is interest that makes your money is making more money. You are not just saving your money, you are actually letting it grow. How does this work?

When you put money in a savings account, certificate of deposit (CD) or money market account, you are basically lending the money to the bank. The bank will use your money to make loans to other customers. They are borrowing money from you and paying you interest, while someone pays them interest on the money they have borrowed from the bank.

Banks charge higher interest rates on loans so that they can pay your interest, while make their own profits.

Interest can seem like a complicated math problem, but it is not hard to understand. Most banks will talk about both “rate” and “yield.”

For example, a $10,000 CD with a 5% annual interest rate (APR) will also have an annual percentage yield number (APY) that is a higher number. The difference between the APR and the APY depends on how frequently the interest is paid, and in what form.

If the interest is paid annually at a rate of 5%, the $10,000 investment with earn $500. Simply multiply the investment amount by the APR to determine the interest paid. When the interest is paid annually, the rate and yield are the same.

The yield goes up as interest is paid more frequently. The interest begins to earn interest along with the original investment. When the 5% CD is paid twice a year, in six months the interest payment is $250. We figure this by multiplying the original investment by the interest rate for half a year, or 2.5%. The $250 in interest will earn $6.25 in interest over the next six months, adding $256.25 at the next six month mark. Compound interest is starting to take over.

In the first scenario, the CD earned $500 in interest in one year. The rate and yield is at 5%. The second CD earned $506.25. The rate is still at 5%, but the yield has increased to 5.06%. It may not seem like a lot, but over time it keeps building up. When shopping around for savings plans, look at both rates and yields.

The followings are saving calculator that you can use to calculate how much the future value of your current savings and how much future income an existing balance and savings plan can provide:

Title:	What Could My Current Savings Grow To?
Description:	Compound interest can have a dramatic effect on the growth of series of regular savings and initial lump sum deposits. Use this calculator to determine the future value of your savings and lump sum.

Title:	Income Generated By A Savings Plan
Description:	Saving regularly can help you achieve your future income goals. Use this calculator to determine how much income an existing balance and/or a regular savings plan can provide.

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]]> http://efinancetips.info/understanding-and-developing-a-savings-plan/feed/ 1 http://efinancetips.info/managing-personal-finance/ http://efinancetips.info/managing-personal-finance/#comments Thu, 19 Mar 2009 16:49:54 +0000 admin http://efinancetips.info/?p=111 Managing personal finance may not be easy for everyone, especially for those who have no experience in business and management. An accurate financial plan will make your work easier and guarantee a successful completion of your financial goals.

Managing your personal finance requires a lot of time and attention, but it is indispensable to your or your family’s financial well being. If you are one of those who manage their finances themselves, you will surely not find this activity as being the most enjoyable in the whole world.

Financial planning is a key component for efficient management of your personal finance. This dynamic process requires regular monitoring and reevaluation. Otherwise, you risk missing points of evaluation and this could damage your finance control. You should keep under control this circular process by repeated verifications and intelligent manipulation. The following five steps should organize and make your planning easier.

Step#1 – An assessment of your personal financial situation. You will do it by compiling, onto a piece of paper, all the personal assets, income and outcome. You should use a simplified balance sheet for listing the values of personal assets (for instance, car, house, stocks and bank account) along with the values of liabilities (such as credit card debt, bank loan and mortgage). Moreover, you can list personal income and expenses on a personal cash flow statement form. You can also make a simple Statement of Net Worth using below template to understand your financial condition.

Title:	Statement of Net Worth
Description:	Use this template to perceive your financial situation.

Step#2 – Setting your goals. In this stage, you should formulate your material desires in a financial language. You can set long-term goals can such as retiring at 60 years old with a significant personal net worth. You can also make short-term plans, for example: buying a house or a car by paying a monthly mortgage for 2 years but no more than 30% of monthly income. You can also establish several goals both long and short-term, in the limit of your financial resources.

Step #3 – Developing an efficient plan in order to accomplish them. The plan should detail the exact actions that you need to undertake. This is the most difficult part of your personal finance management as it asks for thorough research for the most convenient loan, investment or mortgage deals.

Step #4 – Execution of your personal financial plan, monitoring and reassessment correspondingly.

Step #5 – Efficient personal finance management. Discipline and perseverance are necessary for accomplishing this part of the plan. As time passes, conscious fulfillment of every action included in the financial plan must associate with continuous monitoring and reassessment until the fulfillment of the financial plan.

Managing your personal finance has been a challenging task. However, with all information on personal finances we provides in our site, hopefully you can develop a more efficient financial plan to achieve your financial goals.

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First of all, we need to understand the activities of a business reported by an accountant that fall into two separate groups:

• Profit-making activities which includes sales and expenses. This can also be referred to as operating activities. Profit making activities are reported in the income statement

• Financing and investing activities that include securing money from debt and equity sources of capital, returning capital to these sources, making distributions from profit to the owners, making investments in assets and eventually disposing of the assets. Financing and investing activities are reported in the statement of cash flows, which report income of cash and outgoing cash.

Hence, there are two different financial statements that are prepared for the two different types of transactions. The statement of cash flows also reports the cash increase or decrease from profit during the year as opposed to the amount of profit that is reported in the income statement.

The balance sheet is different from the income and cash flow statements which report. It represents the balances, or amounts, or a company’s assets, liabilities and owners’ equity at an instant in time.

The word balance has different meanings at different times. As it is used in the term balance sheet, it refers to the balance of the two opposite sides of a business, total assets on one side, and total liabilities on the other.

However, the balance of an account, such as the asset, liability, revenue and expense accounts, refers to the amount in the account after recording increases and decreases in the account, just like the balance in your checking account.

Accountants usually prepare a balance sheet at the end of each month, quarter and year. It’s always prepared at the close of business on the last day of the profit period.

Below is the balance sheet template that you can use for your business or personal finance.

Title:	Balance Sheet Template
Description:	A simple balance sheet statement for your business or personal finance.