Money Management 101 – Part 3

Financial Road Map 

A sound money management program seeks to layout the ground work in easy laymen’s terms, that can be implemented and adhered to. We’re in the process of laying out a sound money management program that will allow you to get a good handle on your current situation, plan for future goals and prosper in the future.

Previously, we discussed financial planning.  If you haven’t read part 1, and part 2…do so now

Saving and Spending

Saving & Spending  – Nobody has enough money for everything. We’re always making choices, whether we know it or not (shopping instead of saving is a choice).   These choices include everything from your everyday shopping for necessities, to taking advantage of rewards programs to increasing your buying power, to how and when to shop online.

Rule number one and most important, you must not spend more than you have coming in. Pretty basic, pretty common sense, but a very real challenge in today’s world.  The basic solution is to prepare and stick to a budget.

The smart money move is to set deliberate priorities and to have more security in risky times. You should build your savings and assets in the following order:

  • Immediate emergencies fund
  • Longer Term Emergencies fund
  • Retirement
  • Large Purchases
  • College Funding

Build a fund for car and home repairs and unforeseen emergencies – This we’ll call “immediate emergencies fund“. Typically you should shoot for at  least $1000 in this fund at all times.  Your “Longer Term Emergencies fund” will  need to have 3 to 6 months worth of expenses on hand, including your mortgage payments if you have family from which you can borrow money, your income situation is stable AND you have accounts such as a 401k from which you can withdraw money.  Otherwise if any one of these 3 conditions is not possible then you should have 6 – 9  months of living expenses in an emergency fund.  If your income fluctuates wildly or you’re at high risk of job loss, then you should up that amount to 9 – 12 months of living expenses.

Reduce your debt by hammering away at your credit cards & other debts

Save for retirement.  Do this while you’re building emergency cash and repaying debt.  If your company will deduct your retirement savings from your paycheck do it. Get additional retirement information.

Saving for college comes last.  Kids can get student loans or work their way through school.  But you can’t borrow money to retire on. Get a detailed college funding plan.

Make your buying power go farther by developing smart money saving strategies.  Read here to learn some practical  saving money tips. Additionally time is money, so saving time will save you money.

Sign up for a Flexible Spending  Account (FSA) if your employer offers it. An FSA program allows you to put aside up to $2,500 a year on a pretax basis to use for medical, dependent care and transportation expenses. Just make sure to use all the money by the end of the year. If you don’t use it, you’ll lose it.

How do you recovery from past poor money management?   Follow these personal debt recovery tips.

Continue to part 4.

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