A simple guideline
for budgeting is the
50/20/30 Rule.
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
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
allow 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 FDIC-insured 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
Once you determine where your money is going,
and what you have left over, start by paying off your
most expensive debt first.
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