Roseland Associates on the Basics of Personal Finance
Many individuals are worried about a wide variety of personal finance concepts. They are frustrated that they did not learn more about personal finance in school. Concepts, like balancing a checkbook or paying income taxes, seem foreign to them. These individuals will have to research the basics of personal finance and fully understand them if they hope to keep their financial house in order.
The most important step in any personal finance plan is to make a budget. A budget is a log of all of the money coming into and going out of a household, company, or institution. This log can be displayed in a spreadsheet, pie graph, or simply on a sheet of paper. Budgets should be as comprehensive as possible. They should note all of the sources of income and all of the potential needs for spending that an individual may have. Categories may include savings, rent, and predictable medical bills. These needs should be ranked by their costs and importance.
Then, a family should make hard choices about what they can and cannot afford. They should know what accounts they have and what money they can spend on their wants and needs. Many budgets have a certain pool for discretionary spending. Discretionary spending can involve practically everything that an individual may want to purchase. Other individuals may replace that area of spending with entertainment or “other” spending. Anyone drawing up a budget also needs to make decisions about fixed or variable spending. Fixed costs are often one of the first categories that is considered in a budget. Variable costs can often be reduced or eliminated as a result of choices about what to spend money on over a month.
Personal finance involves prioritizing saving over spending. Saving needs to be a priority for a wide variety of reasons. Spending is relatively easy for most people to do. They can meet all of their desire for instant gratification in a matter of seconds. Saving involves a conscious effort and a process of ignoring one’s immediate wants. Individuals have to build up strategies, habits, and will power in order to save at the rates many individuals require to meet their goals.
There are a number of ways that individuals benefit from having money in savings. Savings can help a person save up for major purchases such as houses, cars, or vacations. Money from savings can also help people pay for emergencies. An emergency fund can be a useful place for savings to be deposited into. That money should be specifically earmarked for major purchases in cases of health problems or one or more individuals in a family losing their jobs. Savings can also be helpful for borrowing money later on in an individual’s career. They can reduce the amount of available credit that they are using on a regular basis. Such a reduction can improve a credit score more than almost any other action.
Families should take two steps in order to maximize their savings. One step is to set a savings goal and attempt to meet that goal every month. Each individual in a family who spends a considerable amount of money should be held responsible for meeting a portion of the savings goal. Keeping family members accountable is the best way to ensure that a family will have enough savings to make all necessary purchases. Another step to maximize savings is to make use of an online savings account. Online savings accounts provide a much higher interest rate than traditional accounts with almost none of the associated costs and fees. They can add up to thousands of dollars in interest over a span of years. This simple change makes attaining savings goals significantly easier with almost no extra effort.
Millions of Americans will need to borrow money at some point in their lives. These individuals must be familiar with how the borrowing process works. Individuals apply for loans and are approved or denied based on their credit history. Individuals build up their credit history through purchasing items on credit and paying those back on time. As mentioned previously, they must make sure that they are only spending a small percentage of their available credit. Borrowing is more than just building up a credit score, however. It also involves research and shopping around in order to find the best deals possible.
Smart borrowers make sure that they are receiving the best interest rates with the best terms possible. They often travel to two or more banks or credit card companies in order to secure the best possible rates. These individuals make sure that they are paying off their debt on time and that they are not taking on debt beyond their means. They may take on smart debt like consolidation loans offered by reliable companies such as Roseland Associates. Borrowing can easily create a headache for the average family if the borrowers do not realize how quickly they can fall into a debt spiral.
Investing is often an aspect of personal finance that many individuals ignore. They are living paycheck to paycheck and have not saved much money at all. In some situations, individuals see the ebbs and flows of the stock market and do not want to put their money at risk. But these individuals need to know the importance of investing and the vital role that investing will play in their financial future. Investing is the way that the vast majority of individuals are able to afford retirement. Savings accounts and cash accumulation are simply not enough for many individuals to meet all of their financial needs in retirement.
Investment income is needed in order for families to overcome inflation and meet their needs. The most important factor of investment that many families need to know is passive versus active investment. With passive investments, individuals put money into index funds and have that money grow over time with contributions and compound interest. This approach is contrasted with an active investment where finance professionals make decisions about a person’s investments for a fee.
Personal finance is a skill that takes time and effort to master. Individuals need to spend several hours per week planning their finances and doing research on how best to save, spend, and invest their money. They should also consult a professional like those at Roseland Associates if they feel like they need more help overcoming existing debt. By taking these simple steps, individuals can vastly improve their financial situations and feel greater ease when they think about their finances.