If you want to have a good personal finance, you must learn to save money. Don’t spend money on things that aren’t necessary. Try to find lower price alternatives whenever possible. But now I want to look at the other side of the equation: is buying cheap stuff always a good choice?
Well, if you buy cheap stuff then of course you will spend less amount of money for the item. But I’d argue that it’s not always a good choice. In fact, simply finding the cheapest alternative out there is almost always a bad choice.
How can that be? How can it be that spending less money is bad? The reason is that you need to look at the total cost of ownership (TCO) of the stuff and not just the purchasing price. While you might save money at the time of purchasing by buying cheap stuff, in the long run you could actually spend more money.
Take buying car as an example. If you buy a cheap used car, you may need to spend more on maintenance later on. So you save money once when you buy the car, but you end up spending more in the following occasions. This is especially true if the car had a serious problem which – obviously – is much more like to happen to a cheap used car.
So be careful not to use price as the sole criterion in making your buying decisions. There are many other things you need to consider to decide whether or not something is worth your money. Looking only at one side of the coin is actually a good way to lose money – not to save it.
That’s one thing you need to remember when you’re about to buy something. Buying cheap stuff isn’t always a good choice. More often than not, it’s a bad choice to take.
One part of your personal finance that you should not forget about is your personal financial documents. But why should we care about them, especially because so much financial information these days is online? Well, they might not be useful when everything goes well, but when something goes wrong your financial documents can really save the day.
For example, you need your documents when you had tax-related problems. If you don’t have complete documents, it would be difficult for you to defend your position in such a problem. On the other hand, by having a complete set of personal financial documents you can clarify your situation in such a way that’s acceptable to the other party. No wonder the IRS requires you to keep your documents for at least seven years.
So make sure that you store and organize your financial documents properly. For very important documents, it’s wise to store them in a safe deposit box. It does cost money to rent a deposit box, but the benefit you get from the safety of your documents outweighs the costs. By saving them in a safe deposit box, you minimize the risk of the documents being stolen or destroyed when something unexpected (like a fire) happened.
For other documents that are less important, store them in a safe location in your house. It could be in your room or in your basement.
In addition to storing your documents properly, you also need to organize them well. Otherwise, it could be difficult to find the documents you need when you need them. So have an organization system in place for them. For instance, you may want to group related documents in one folder and label them in such a way that makes it easy for you to find them.
Properly storing, managing, and organizing your personal financial documents is essential for your personal finance.
Have you had an individual health insurance coverage? Health insurance is important because when something goes wrong with your health, your medical costs could be prohibitive. What’s the use of saving money for years if you have to spend it on health-related expenses? As such, you need to be covered with a good insurance.
Many people can get the coverage through the employer. This is perhaps the best option for most people. The benefits you get vary from employer to employer, but in most cases you get enough coverage for common medical issues. In fact, the insurance could cover not only you but also your family members.
Things become more complicated if you work on your own. Since you have no employer, it’s up to you to get the best individual health insurance coverage. It’s up to you find and select the best protection for you and your family.
In such a case, you need to get as much information as possible before making your decision. Don’t buy an insurance just because many people use it. Carefully consider its costs and benefits. Also pay attention to how easy it would be to claim the insurance when you need it. You may want to compare a few options before you make your decisions.
It’s definitely not easy to get the best insurance for your situation. It takes time to do your research. But if you do your homework, you will be glad when the time comes for you to use the benefits.
Computers’ role in our work and daily life becomes increasingly important day by day. People use computers for their entertainment, productivity, and communication needs. Of course, to do all those we need to install various software on those computers. We need to install software to play music, type documents, chat through the Internet, and more.
This could mean a lot of expenses if you use commercial applications. Equipping your computer with commercial software for productivity (like Microsoft Office), image editing (like Photoshop and Illustrator), and money management (like Quicken) could easily cost you more than a thousand dollars. This is not to mention specific applications (like AutoCAD or Visual Studio) or games. In short, you could spend a lot of money just to fill your computer with the software you need.
Fortunately, there’s a lot of good but free alternatives out there. Instead of installing Microsoft Office, you can use OpenOffice.org or Google Docs. Instead of using Adobe Photoshop, you can use Gimp. Instead of using Quicken, you can use GnuCash or Mint. Instead of using Windows, you can use Linux. All this software won’t cost you a dime (aside from the bandwidth cost which, in my opinion, can be neglected).
So whenever possible you should use these free alternatives over the commercial ones. Just because most people use the commercial application (Photoshop comes to mind) doesn’t mean that the free alternative is bad. In most cases, the free alternatives can already meet all your needs. It’s true that the commercial applications usually have features which the free alternatives lack. But it’s also true that most people never need those features except for some professionals.
Using free software can save you a lot of money. You can then use the money for something else like your investment or education.
When it comes to getting big loans (like home mortgage), your credit score plays an important role. The better your credit score is, the better rate you can get for the loan. This can make a big difference in your personal finance since it could mean a difference of thousands of dollars for big loans. That’s why you need to improve your credit score and keep it good because it will help you a lot when the time comes to get a big loan.
But how can we improve our credit score? Well, there are many possible ways for this, but one simple thing you can do is to simply pay your credit card balance in full each month. It’s simple, isn’t it? But it can improve your credit score. Since you have good record for your credit card payment, it will also affect your credit score as a whole.
On the other hand, failing to pay your credit card balance in full could lead to bad credit score, not to mention other financial problems you could have. Many people just pay the minimum of their card balance but that’s a bad habit. Why? Because it will become a big debt snowball. What started like a small credit card balance carried to the following month might eventually become a monstrous debt. This also instills a bad habit in your financial life that might affect other parts of your personal finance.
So make sure that you pay your balance in full each month. If your bank supported it, use automatic payment every month for your card balance. This ensures that you won’t carry a balance and you don’t need to worry about it because it will be done automatically.
All in all, not only paying your credit card balance in full each month improves your credit score, but also it prevents you from building bad financial habits into your life.
Practically everyone has credit cards these days, but many of them don’t get the most out of their cards. They might have used their cards for years just as an instrument of payment, but they don’t realize that they can get many more things (in the form of benefits and rewards) from their cards.
Don’t be one of these people. Make sure that you take full advantage of your credit card’s rewards and benefits. To do that, don’t forget to read the guidebook of the card. Your credit card may offer customer protection benefit that helps you against purchasing problems. While normally you might not be able to do anything when something goes wrong with your purchase, your credit card company may be able to help you in such a case.
Frequent flyer reward is another kind of benefit you might get. This is especially useful if you fly often either for business trips or personal purposes. In addition, you might get access to special waiting lounge in the airport as a benefit your credit card offers.
And of course, there are discount programs at multiple merchants. Take the ones you are interested in and take advantage of them. Just be careful: don’t spend money on something just because it’s discounted. Doing that means unnecessary spending on your part that could harm your personal finance. Spend money only if you really need or want it.
One thing you need to be careful about is not to carry balance on your card. Credit card could be a highway to personal finance problem if you just pay the minimum of your bills each month. Don’t do that. Make sure that you pay your credit card bills in full each month. Doing this ensures that you get the most out of your card’s benefits and rewards without letting it harm your finance.
If you want to live without financial worries, one important habit you should build is saving habit. This is essential because otherwise you will just enter financial problem after financial problem. Your situation is especially dangerous if you are living paycheck to paycheck. You don’t have any financial breathing room, so if something unexpected happened it could easily put you into financial trouble.
A saving habit helps you prevent this problem. Your savings is your financial breathing room. It acts as cushion when something unexpected happened. You can still absorb whatever unexpected expenses that come your way with your saving. And you have time to rearrange your personal finance if you need to.
As such, you need start building the habit as soon as possible. The problem, of course, is how to start.
Well, one strategy that many people find effective is paying yourself first. Don’t wait until the end of the month to see if you have any money left to be saved. If you do it this way, chance is you won’t get anything left and therefore you will save nothing.
So do the opposite. Before anything else, transfer a certain amount of money to your savings account and don’t touch it. Afterward, you can start to spend whatever money that’s left for your bills and needs. Financial experts call this strategy “paying yourself first.” Even better, you can do it automatically through your bank. Just set up an automatic transfer from your checking to savings or investment account each month. This way you don’t have to worry about saving, it will be done automatically for you. This is perhaps the best way for you to build the saving habit.
When you invest in the stock market, you obviously want to put your money when the prices are low and then take the money out when the prices are high. This way you will get a lot of profit for your investment. But timing the market like that is difficult, not only for laymen but also for professional investor. What often happen is the exact opposite: people buy the investment products while the price is high and sell them when the price is low (since they become panic because of the low price). That way many people actually invest their money for loss.
This, of course, also applies to mutual fund investment, more specifically to the mutual funds that invest in the stock market (this is the type of mutual fund that becomes the focus of this article). It’s hard to time the market and many people actually buy and sell at the wrong time.
Fortunately, there is a simple strategy to overcome this situation. The strategy is dollar cost averaging where you invest a fixed amount of money periodically for certain period of time. For example, you may want to invest $100 a month every month for one year. No matter what the price is, you keep investing the money month by month. That’s a simple strategy, isn’t it?
Though it’s simple, it works well for many people. Just think about it. With this strategy, you will buy more mutual fund units when the price is low and less units when the price is high. So when the price increases, you get relatively more profit and when the price decreases you suffer relatively smaller loss.
Many banks now offer the ability to execute dollar cost averaging. You can automatically invest certain amount of time periodically in your investment instrument of choice. Take advantage of such an arrangement if you had one in your bank.
There are many things you should consider when you want to buy a car. You should consider its convenience and price. You should also consider the maintainability of the car. Is it easy to maintain?
But there’s one more thing you should consider: your car mileage expenses. Don’t overlook this important factor because it might cost you a lot in the long term if you do.
Gas expenses will become dominant in your years of using the car. The longer you plan to use the car, the more important gas expenses become. What’s the use of buying a low-price car if it will cost you way more on gas? Isn’t it better to buy a more expensive model that can save a lot on gasoline? So you need to consider the total cost of ownership (TCO) of the car and not just the initial buying price.
There’s one more reason why your car mileage is important. In the future, the government is moving toward more efficient cars. They will give a lot of incentives for people to drive more efficient cars (just remember the Cash for Clunkers program). If your car mileage is bad, you might not be able to take advantage of all the benefits that the government might offer in the future. That’s why your car mileage expenses is important to consider before you buy a car.
Have you checked your IRS income tax refund status? If you haven’t, then you should go to the IRS web site and use an online tool there that will give you your refund status. To get the information, you need to input your Social Security Number, your Filling Status, and the exact whole dollar amount as shows on your tax return.
If I may suggest, you should use your refund in the best possible way for your long-term benefit by investing it. If you just spend it on something consumptive, then you won’t get any long-term benefit. But if you invest the money, you will enjoy the reward for years to come.
It will be even better if you can minimize your refund and just invest the money right away. Why wait for the federal tax refund if you can use the money now? Looking at the time value of money, the money in your hand now is more valuable than those that you receive later. Why? Because you can get more interest by investing it earlier. That’s something you should consider. Either way, don’t forget to check your IRS income tax refund status if you haven’t done it already.
