Personal Finance: Part 1

In today’s “Thoughts” post, I’ll be talking about my opinions on Personal Finance. This will be a two-part article. Areas of saving and bills will highlight Part 1. Credit dilemmas, the recent round of Financial Market collapse, and a few other relevant ideas will highlight Part 2.

As always, your additions and subtractions to “Thoughts” posts are welcomed, everyone who has an opinion will be allowed to voice it in this domain.

Let’s start off with bills. Most of us have them, all of us dread them, and many of us struggle to keep up with them. If you look at your individual monthly bills (and I know I have), they can add up quickly. Things like the necessities (which you can’t cut out), include Utilities, Rent/Mortgage, Phone, etc. Some of the luxuries may include Cable/Satellite, Internet, Cell Phone, Credit Card/Shopping, etc.

Left unchecked they can quickly become overwhelming, though the government is stepping in and stopping lenders from taking advantage of consumers.

I’ve found that taking the following two approaches can help (and if you have your own, please feel to share it so others may learn as well):

  • Itemize your Total Monthly Bills the way you do with your other Finances. Separate out each Bill and treat it as its own. This doesn’t mean that you don’t consolidate your bills if presented with the opportunity (because having less interest payments is always good).

By separating your bills from one another, you can more easily payoff each individual bill than the one lump slump because it’s all a psychological game. The many smaller hills will be easier to climb than the one large mountain (which will most likely seem insurmountable).

  • Approach 1 leads us in a sense to Approach 2. If you’ve separated out your Monthly bills one-by-one, you can see more easily where the largest and smallest areas are, which bills are due when, what balances remain, and more importantly: which bills are more important.

Bills like Utilities (you need electricity, gas, etc.), and Rent/Mortgage (you need a roof over your head), are the ones that cannot be cut out in the future. However, others like daily shopping trips (sorry ladies πŸ˜€ ), Premium Cable, etc. might be.

Now, I’m not a caveman, I like my luxuries too. The best options here, would be to find alternatives to the more expensive bills. For example, instead of heading to Starbucks, or buying a new Magazine/Pair of shoes each day…how about you bring coffee from home (in those thermo-mugs), or listen to your ipod, or shop only once a week or every other week. Also, do your grocery shopping on a full stomach, and you’ll see that bill dramatically shrink. πŸ™‚

Other examples include: if you use your cell phone more than your home phone, perhaps you should make that your main line and cut out one extra bill. If you like Premium Cable, or use the internet, etc., many Cable and Phone companies offer Triple Play packages where you can bundle Cable, Phone, and Internet into one bill and dramatically reduce your Monthly costs (not to mention rate-taxes/fees).

Shop around, try to find the best “bang for your buck”, but I’d recommend that you not implement any new services until your old ones end, otherwise you may incur termination fees that could easily wipe-out any advantageous savings.

Speaking of savings, now that you have a basic plan to help you tackle your bills, you’ll start noticing you have more money leftover. Now, here is where it takes some serious determination, and what separates the rich from the poor, is that you not spend away those extra amounts.

Many people don’t want to “bank” their extra savings because many banks offer low interest rates on accounts. If your initial balance is low, the rate of return (amount you get back above your initial deposit), can seem low and not worth it. Here’s where shopping around can help, banks like ING offer higher rates on their accounts (I believe it’s around 3%), and it can help you grow your money faster. Also, choose a bank that’s resilient (like Bank of America or Chase), that are able to “weather the storms” of the Markets (like we’re experiencing now).

Alternatives to savings accounts include Index-Funds/Mutual FundsΒ (goes the safe route by spreading your money over Index-type funds/stocks/bonds, and aims to minimize risk), Bonds, CDs, Money Market Accounts, etc.

Another way to grow your extra savings is by preparing for the future for when you’re Retired, and you may not have a steady job/income. Here is where things like 401K’s (where your employer matches a portion of your contributions so you get more for your money), or IRAs and Roth IRA’s (where you contribute a portion of money monthly that grows over time to large amounts via Compounding). Pay attention to the differences between Roth IRA’s/401K’s and regular IRA’s/401K’s, they effect your Taxes, since one deals with being taxed now, while the other with being taxed later.

These are terms that are new to you or can be confusing. It’s best to research them first before you take the plunge and commit to one. At the end of this article I’ve provided some links that could be of help, but feel free to research beyond these, as you’ll want to be as informed as you can.

Regardless of which savings route you take, the one thing to keep in mind and be proud of is: that extra money isn’t lost, and it can actually make money (I’m sure you’ve heard the term “Money making Money). It can feel good that you didn’t waste all that extra money without planning. You’ll also feel good when you can retire and travel the world, or retire young and enjoy the beaches and cool-air in the Carribean because you made better decisions (but keep in mind that anyone at any age can start).

I’d like to hear from you. What routes have you taken? What would you like to add that can help others here? Feel free to comment on anything that you have to share, and who knows it may help someone else with their Finances. Your opinions are always welcomed in the “Thoughts” domain, regardless of where your from. Stay tuned for Part 2 in the comming days.

Some Resources To Start With:

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~ by drcorner on September 17, 2008.

5 Responses to “Personal Finance: Part 1”

  1. I saw an article today about an iPhone App called Pennies. Its a cool looking budget tracking software for iphones. . . . I thought about downloading it for $2.99 but i’m also trying to cut my frivolous spendings . . hahaha!

  2. πŸ˜† That’s rich (no pun intended), saving pennies for an App called Pennies, that’s meant to save you pennies (my head hurts πŸ˜› ).

    On my Blackberry I just open an excel file I have saved and edit it whenever I need to, and for instant calcs’ on more complex stuff I use an App that cost about the same as the one you mentioned (but I figured the benefits will far outweigh the cost here).

  3. the small hills/ mountain metaphor was really clever. I have a big amount of bills to pay but I like paying off the smaller ones first, like you said. Killing birds with stones πŸ™‚

  4. πŸ˜† Glad you like the analogy Jane…Yep, the more you can eliminate the smaller the pile gets, so eventually they’ll be no “birds” altogether.

  5. […] post concludes the two-part Personal Finance topic I started, you can find Part 1 here. In Part 2, I’ll be talking about the credit dilemmas, the recent round of Financial Market […]

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