May 27, 2007 - When it comes to managing your money, a little common sense goes a long way. Whether you're just starting out or are further along in life, it is never too late or too early too set and follow good financial habits. Listed below are some simple guidelines that should seem obvious yet are all too rarely followed:
Develop a Financial Plan and Set Goals – if you don't have a plan and know where you're going, you could end up somewhere you don't want to be. List and prioritize your goals because once you have developed a plan you can make investment and spending decisions that move you closer to meeting those goals.
Save Enough Each Month to Meet Your Goals – figuring out what you need can be tricky and chances are you will need more than you think. Of course we all want to retire early and live a long life so if you plan on doing both, you should end up far ahead of most. But along the way you'll want to purchase a home, send your kids to college and help out your family financially as much as possible.
Create a Budget and Live Within Your Means – after you've gone through the process of setting your goals, you must have the discipline to stick with your plan and refrain from overspending or you aren't going to get far.
Avoid Counterproductive Debt – analyzing whether you should go into debt is a relatively simple process. Good debt allows you to purchase an appreciating asset (i.e real estate) which will steadily increase in value after it is acquired and bad debt is a means of purchasing something of value to you today which will only decline in value after it's acquired (AKA a depreciating asset such as autos, boats).
Manage Life's Risks – work insurance protection into your budget. We all need medical insurance (a minimum of catastrophic coverage), fire or hazard insurance, disability insurance (to protect both yourself as well as your family) and life insurance if you have dependents that are reliant upon your income should anything happen to you.
Keep an Emergency Cash Reserve – you should have a policy of disability insurance to help you cover your living expenses if you are unable to work due to illness or injury for a period beyond 3 to 6 months, however everyone should try to maintain a minimum of 3 to 6 months expenses covered in a liquid account to help see them through a short term emergency.
Manage Your Investment Allocation – you must diversify and allocate your assets according to your goals and level of risk tolerance. You must also guard against becoming complacent once you are fully invested and must periodically check your investments and re-balance all your accounts in accordance with your stated goals and asset allocation plan once you have experienced significant growth or contraction in any area of your portfolio.
Get Help When You Need It – don't shy away from seeking the help of a professional when you need it. It's easy to understand the hesitation many people have in pursuing a so called expert's advice. The number of advisors who sell products behind the advice they give can make it confusing to know the true motivation behind a professional's recommendations. That is why it's essential to ask how any advisor is going to be compensated and what the amount of that compensation will be.
Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
"I am addicted to Bloomberg TV" says Nancy.
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