Once you determine where your
money is going, and what you
have left over, start by paying off
your most expensive debt first.
Fixed costs include monthly spending required to live.
Think of the essentials: food, shelter, transportation. Your
mortgage, utility bills, and transportation costs are 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
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A simple guideline for budgeting is
the 50/20/30 Rule.
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