A simple guideline
for budgeting is the
50/20/30 Rule.
often similar month-to-month and
easy to predict, making this category
the easiest to budget.
Financial goals will help you get to
where you need to be for your future.
This includes saving for retirement,
paying down debts, and building your
emergency fund.
Flexible spending varies from month
to month, but can be somewhat
predictable. Groceries, gas, and
entertainment all find their way into
this category. While some of these
costs can be impulsive (going to the
grocery store on an empty stomach
and buying everything in sight), you
can look at monthly spending to gauge
what you typically spend on these
types of purchases.
Once you determine
where your money is going,
and what you have left over,
start by paying off your most
expensive debt first. Look
for the credit card with the
highest interest rate and start
paying off the balance by making more than
the minimum payment, while continuing
to make the minimum payments on all
other cards. Taking these steps to start
eliminating debt will enable you to start
investing your money to allow it to grow for
the future.
INVESTING ESSENTIALS
We all work hard for our money, but
it is important for your money to work
just as hard for you. Now that you’ve
determined that 20% of your money should
be budgeted to financial goals, you just
need to figure out how to invest. No matter
what you are saving for, you should start by
setting realistic, manageable goals for your
money, and then find the discipline to reach
them.
Investopedia breaks investments into
three groups: ownership, lending, and cash
equivalents.
Ownership Investments: Typically
the most volatile and profitable.
These types of investments span
from stocks, to owning or running
a business, to buying investment
real estate, to purchasing precious
objects such as jewelry or art with the
purpose of reselling to make a profit.
While you can make the most money
out of these investments, there is
often greater risk. If you have a “risk
is worth the reward” mentality, then
ownership investments may be a
good option for your money.
Lending Investments: Similar to
Monopoly, you get to be the banker.
These low-risk investments, in the
form of savings accounts, tend to
return less than high-risk alternatives.
Questioning why your savings
account is considered a lending
investment? Your bank uses the
money in your savings in the form of
loans, and in return pays you interest.
Also, the Federal Deposit Insurance
Corporation (FDIC) insures up to
$250,000 per depositor per FDICinsured bank if the bank goes out of
business.
Cash Equivalents: Money market
funds are easy to convert back into
cash and the risk and return are both
minimal. Your money is liquid in
this type of account, making it easy
to get money out. These types of
investments are considered safe bank
deposits, but often yield a higher
return. Investing in “cash equivalents”
is best for older investors who are
looking for a safer option, rather than
investing in risky, long-term stock
options.
Paying down debts and putting your
money toward your future is a rewarding
experience. You’ve worked hard for your
money, so whether you are saving up for
your first car or looking toward a relaxing
retirement, make sure your money is
working just as hard for you. n
Carlynton-Montour | Summer 2016 | icmags.com 31