July 23, 2023 • 31 mins
Knowing the basics about personal finance is necessary for debt reduction. Everyone should understand personal finances to plan and pay bills. This includes savings for future purchases and taking care of basic needs.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Charles McDonald (00:04):
Hello, I'm your host Mr. Chuck. I retired
accountant turned truck driver,I reduce my debt in a relatively
short period of time. debtreduction to achieve financial
freedom takes commitment,confidence, determination.
(00:25):
Personal Finance basics, knowingthe basics about personal
finances necessary for debtreduction. Everyone should
understand the personal financesto plan and pay bills. This
includes savings for futurepurchases, and taking care of
basic needs first, before I getstarted, if there was a week
(00:49):
where I didn't issue a newepisode, I was because I was on
vacation and was unable to getback in time to get it uploaded
to my hosting provider. So sorryfor that, but keep on moving
forward. I have a link in myshow notes for an article I'm
(01:10):
referring to personal financepersonal finances, a term meant
to describe managing yourfinances through budgeting,
savings and spending. Thisinvolves long term planning and
considers potential financialrisks, retirement and estate
planning investments and howyour financial situation evolves
(01:33):
over a lifetime, personalfinances and corporates how you
manage all aspects of you oryour family's finances, both
short term and long term. Thatterm is also used to describe an
entire industry devoted to theservices and products designed
to help individuals manage theirfinances and take advantages of
(01:57):
investment opportunity. So whyis personal finances important?
personal finances a vital partof not only managing your day to
day financial needs, but alsoplanning your financial future.
The sooner you get a grip onyour personal finance, the
better your long term financialprospects will be for things
(02:20):
like investing or planning forretirement. By understanding the
elements of personal finance,you can better understand
opportunities to improve yourfinances this understanding can
help you budget for currentneeds while planning for long
term financial goals. So whatare the five areas of personal
(02:42):
finance one income, income asthe foundation, naturally, if
you don't have income, you'renot going to do a whole lot.
Number two spending. Spendingincludes the money for any
expenses you have. controllingthe amount of money you spend
can allow you to set aside moneyto grow your financial future.
(03:05):
So if you spend less, you cansave more. Three savings.
Savings includes any money fromyour income that you do not
spend, but set aside for thefuture. It is necessary to
provide for potential expensesplanned or unplanned. I think
another word for that would bean emergency fund. And then for
(03:27):
investing, investing isdifferent from savings. real
savings are what's left overfrom you income investments are
purchases that allow you to earnfuture income or savings.
investments may includepurchases of mutual funds,
stocks, bonds, or real estatethat you expect to give you a
good rate of return. Butinvestments come with risks. And
(03:50):
then number five protection,protection from financial risks
can be handled through thepurchase of life insurance,
property insurance, cows, anyinsurance, health insurance, and
things like that. So you haveincome, you have spending.
(04:11):
Everybody probably has thatinitial two down because that's
what they do. You work you makemoney, you spend money, or they
were you may be lacking is thesavings. You got to set a little
bit aside first and have alittle bit of savings to plan
for some expenses upcoming orsome unexpected, enhanced
(04:35):
emergency fund. Then we haveinvesting. Once you get enough
money set aside in your savingswhere you can meet your bills
that are coming up in thefuture. Then you have some money
you can invest and then five,protect everything that you
(04:55):
have. You need insurance to dothat and Insurance is
protection. And that's why whenyou get a mortgage on a home,
you they require the lender mayrequire to have mortgage
insurance. So if you did havefault insurance or pay them, so
that's their protection, thenthey require you to have
(05:17):
homeowners insurance. Ifsomething happens to the house,
a storm or tree or something,then they know it's gonna get
repaired or fixed or some typeof settlement. And they will get
their money because they're notlosing the value of the house.
And he have automobileinsurance. Same thing, if you're
(05:37):
in an accident insurance, eitherrepair your car, or give you
money, so to replace the car inthe future, so you're not
getting stuck with a loan withan asset that is totally
destroyed that you cannot use.
That's what insurance is forhealth insurance. It's the same
thing. Life insurance,disability insurance, all that
(05:59):
is meant to protect you fromsome future event that may or
may not happen, but it'sprotection, as gives you peace
of mind. So we have incomespending, saving, investing
protection are the five mainthings and personal finances.
(06:19):
The fundamental principles,there's 12, or those there are
12 basic principles ofsuccessful personal finance,
according to the JumpstartCoalition for financial
literacy, a nonprofitorganization that promotes
financial literacy education inthe US public schools. So number
(06:40):
one is know your take home payBe aware of your income before
you commit to any significantspending, such as credit card
debt, car loans, or a mortgage.
your take home pay is not thesame as your gross pay, your
gross pay is if you get paid bythe hour number hours you
(07:03):
worked, overtime included timesyour rate of pay at equals your
gross, then you pay income taxesoff of that he may make
contributions to a retirementplan or commonly known as a 401
K, he may make health insurancepayments, you may have had child
support come out there. So theamount of money that you deposit
(07:28):
in your checking account is yourtake home pay to is pay yourself
first. Set aside money from eachpaycheck for unexpected
emergencies and long term goalsbefore paying your bills, shoot
for 5%. If you can't take 5% andput it in a savings account,
start saving now ideally, youshould start saving for your
(07:50):
future. While you're stillyoung. The longer you save, the
more interest your savings willearn. The sooner you start, the
more you're gonna have later inlife pretty basic because of
compounding, and let your moneywork for you. If you don't start
(08:12):
saving until you're 55 you'renot gonna have much money set
aside for retirement. If youstart saving at 25 You can might
be able to retire early, becauseyou're gonna have plenty of
money because of compounding.
Compare interest rates, whetherit's savings for your future or
looking for the right creditcard, look for the best interest
(08:33):
rate first earn more interest onsavings and pay less interest on
debt. So for credit cards, youwant a lower rate on savings
account, you want a higher rate.
Be aware shop around rememberthe rule of 72 to figure out how
many years it will take timesavings to double divide 72 by
(08:59):
the interest rate of yoursavings. So right now, I'm
getting four and three quarterspercent interest. If I divide
that into 72, it's 15 years, somy money will double every 15
years at that rate of interest.
If I had a percent rate ofinterest, it would be nine
(09:20):
years. So it really helpsnever borrow what you can't
repay, make sure you can pay offwhat you owe. This will improve
your credit overall and keepyour debt manageable. That's why
I talk about those percentages.
When I talk about a budget, yourmortgage loan should be around
(09:43):
25 to 30%. Your car loan shouldbe somewhere around 10 to 15% of
your gross pay. And that's why Ido that that helps keep your
borrowing under control so youdon't get to borrow too much
from only for one thing, andthen you're stuck. He might be
(10:03):
house poor, because 80% of yourmoney is going into paying for
your home. But you're not goingto do anything else you're going
to be barely have enough moneyto eat and go to work. So that's
six, never borrow what you can'trepay, treat credit cards like
cash. If you don't have the cashto buy something, you don't buy
(10:26):
it on a credit card. So you getpaid weekly, you pay off your
credit card weekly, you get paidevery two weeks, he should be
able to pay off your credit cardevery two weeks, treat credit
cards, like cash in your wall,stay out of trouble. Don't
borrow money, too far inadvance, pay too much for a car
(10:49):
and go like an eight year loanat $1,500 a month. He really can
you afford that? Know what youcan afford before you go
shopping, if he can afford $800A month car payment, and you're
pretty comfortable with that.
And it's not going to put astrain on anything else in your
budget. That's what you shouldshop for somewhere around $800.
(11:12):
The bigger down payment youhave, then the less you have to
borrow, the lower your paymentsgonna be and the less interest
you'll have to pay this a NoteSeven create a budget, they say
and say that said set up anannual budget of income and
known expenses. Use this as aroadmap to build your savings
(11:36):
while living within your income.
We got to take that fartherahead. You want to set up a
monthly budget. So you know yourexpenses coming up every month
for the whole year. So you doJanuary, February, March. And
then you also set up yoursavings, you set up all your
(11:59):
credit card payments, you set upall your needs first, housing,
transportation and food, thenyour wants clothing,
entertainment, car, new car,whatever your goals, whatever
you want to save for a future,those type of things, and know
how much you need every month,where it's gonna go. Sign your
(12:22):
money to a category, know thatit's going to be paid off and
try to do it so that you're havethe money in your checking
account, and July to pay foryour August things. And you'll
be happy you did so rememberthat high returns mean high
(12:47):
risk, high returns on investmenttypically means you're going to
have to take higher risks. Thefirst define your investments
can spread the risk aroundprotecting your investments. The
younger you are, the more riskyou can take. The older you are,
the less risk you're gonna take.
But diversification is key tolong term investment. Spread
(13:08):
your money around don't puteverything in one basket.
Because if you put everything inone basket and that one thing
fails, you lose all your money.
If you spread everything aroundand one thing fails, you're
hardly even notice it. Nine,don't expect something for
(13:30):
nothing. Be wary of get richquick schemes, if they are real,
everyone would already be doingthem. If it sounds too good to
be true, it probably is. And geta second opinion, especially
when you're talking to a lifeinsurance salesperson, somebody
that wants you to buy some typeof an annuity or some type of
(13:54):
insurance product. Get a secondopinion from a different type of
financial professional. Anddon't ask friends, family or
neighbors because they may ormay not know. Plan your
financial future take time towrite down your financial goals
both short term and long term.
Then work out a realisticroadmap to get you to these
(14:17):
goals. So say for example,you're saving up and you want to
buy your first home. How are yougonna do it, write it down,
write down the home you want theneighborhood, the price range,
how much down payment you'regonna need and how much you can
afford, and then work towardsgetting your down payment and
(14:39):
seeing if everything that you'relooking at is reality in real
life and may be that yourmonthly payment may be lower
than what you're gonna be ableto get. So you may need a bigger
down payment as called PlanningAhead Your credit past
determines your credit future,your credit record is kept for
(15:04):
years by credit bureaus. Ifyou're having trouble paying
loans, or credit card debt, thatrecord can hurt your chances of
getting credit in the future. Ifyou have a lot of debt, you
probably already know you havebad credit. If you get things
under control, and he's maketimely payments month in and
(15:24):
month out, and you pay off someof your credit cards, your
credit score will get better byinsurance. That's protection.
Health Home auto and lifeinsurance can protect you and
your loved ones from financialhardship and the event of
accident or illness. That alsoin there is a disability income.
(15:48):
If you're unable to work for dueto an illness, you have short
term, you have long term, andit's designed to replace your
income for either a short periodor a long period depending on
what's going on. So the more youmake, the more you need.
Disability Insurance is notbecause you didn't die, it's is
(16:13):
because you're unable to workdue to an illness or an injury.
And then that would kick in toreplace your income they used to
make him call protection. And ifyour underwear unsure of all
these things, you should studyhim up and get to know them and
(16:33):
get them memorized. I have alink in my show notes for this
article. And it's a greatarticle. The first five things
you need is income spending,savings, and investing
protection. That's the basics.
Know your income, know whereyour money is going. Save a
(16:55):
little bit, start investing soonas you can have protection to
protect yourself. Then afterthat and expands to know your
take home pay, pay yourselffirst, start saving now compare
interest rates. Remember therule of 72 Divide your interest
(17:15):
rate into 72. That's how manyyears will be before your money
doubles. Never borrow what youcan't repay, create a budget I
say monthly. Remember that highreturns means high risk, don't
expect something from nothing.
Plan your future. Your creditpast determines your credit
future. And a bad credit scoreis gonna cost you more for
(17:39):
insurance, whether it'shomeowner insurance, car
insurance, health insurance,whatever it is, you're gonna pay
more for insurance becausethey're gonna see you as a
higher risk for non payment. AsI said, I'm gonna be going on
vacation this may or may not beuploaded in time because I right
now it's May and I am unable todo it because I have no more
(18:04):
minutes left. But I'm going tobe out of town for at least six
weeks or longer. If I don't getback in time, there may be a
couple of weeks left before thisepisode comes up and you're be
able to hear it. But I hopethat's not too much of a burden
on you. And if you find thispodcast useful, please go to my
(18:28):
footnotes, I have a link for mysubscription plan where you can
go there and make acontribution. Or you can go to
reduce that increase wealth.com.
Click on support and do the samething. Thank you for all those
(18:48):
who've done it in the past. I'llbe back in one moment with my
final thoughts. If you'reinterested and learning about an
online software that helpedmyself get out of debt, it does
tracking, budgeting, and keepstrack of all your assets and all
your debt and even tells you howmuch and when to transfer money
(19:13):
into your savings account andhow much and when to transfer
money to your debt and whichdebts to pay off in order.
First.
It's not cheap. It's a one timepayment. But it will definitely
be an investment something andyourself and an investment in
(19:34):
your personal financial life. Ifyou're interested, send me an
email at reduce debt increasewealth@gmail.com and I'll send
you the information about thisonline software that works great
for me. Income spending, savingsand fasten protection. Know your
(19:59):
net The income, know where yourmoney is going, say money, and
VAs money. Remember the rule of72, the interest rate that
you're receiving divided into 72gives you the number a year your
money will double. But how arewe gonna achieve that plan for
(20:24):
your future, know what yourexpenses gonna be in the next
three months? Is there anythingcoming up that you pay semi
annual or quarterly, or maybeeven once a year, have any clue
what those expenses may or maynot be and how much they are?
(20:44):
Well, in order to understand andget to know these things, and
your personal finance in yourlife, because everybody's
different, there's a few thingsyou have to do. And there's one
thing you have to do before youcan start a budget. Before you
can do a monthly budget or ayearly budget, or whatever
(21:07):
you're doing it for, I recommenddoing it for a month, and do it
for January, February, March,April may do it all in a
spreadsheet, so you can see it.
And then as the months go, bythe first year, you'll come up
on some expenses that you forgotabout. And now you know about
are they need it? Can you getrid of it? Can you cancel them.
(21:30):
And that's how you start gettingyour personal finances under
control. I gotta say, a lot ofpeople out there, I'm not gonna
give a percentage, because Idon't know, they go to work,
they make money, they make goodmoney, they think they're making
pretty good money, they paytheir bills every month, they
(21:54):
spend all their money, and theydon't maybe have $500 in a
savings account, if they evenhave a savings account. They're
the only investments they mayhave a be through work if they
have a retirement plan throughwork. And they may or may not
even be utilizing that. And thenall of a sudden, they lose their
job. Or they get injured andthey can't work. And now they
(22:17):
have no money to pay theirmonthly bills because they have
no income, and may loseeverything because of that. So
getting your personal financesunder control and knowing what's
going on is important. Andhaving that protection, there
can help you get through somefinancial hardships that may
(22:40):
come along in your life. It'snot when they're not if they're
gonna come along, it's just amatter of when, if you can avoid
them good for you. But beprepared, prepare for the worst
and hope for the best. The firstthing you got to do is start
tracking your money that's goingthrough their savings to your
(23:02):
checking account, your savingsaccount, all your credit cards.
So what is tracking? When I wasin high school and college, that
would have been called a checkregister. Nowadays, the banks
are online, you can go in andlook at your bank balance. So if
(23:24):
you're unsure how much money youhave in your checking account,
you go online and you look, oh,I have $1,500 I can buy this for
$500 that by doing that, did youconsider some things you need to
pay in the near future, likerent, utilities, gas for the
car, food, things like that?
(23:50):
Probably not. Because you werejust focused on buying that one
item. And he was just checkingto see if you had enough money
to buy it. But that is not theway to go. So you need to track
everything and by tracking youwill know your net income, your
take home pay, because that iswhat you're gonna see going in
(24:10):
your checking account. And thenwhen you pay your bills, your
rent your utility, your carpayment, all your credit card
bills, your groceries, yourfood, groceries, your dining out
your gas for the car, insurancefor the car, homeowners
insurance, life insurance,whatever instruments you have,
(24:33):
when you pay those, you'll beaware of what you have to pay,
and to generally a good idea ofhow much you're gonna pay. I
know that my homeowner'sinsurance is due in September
and it's somewhere around 1000bucks, plus or minus a few 100
(24:55):
depending on what the insurancecompany does. I know my Real
estate taxes are due in January,and June on the 20th every year,
and it's about $2,600, a half,or about $3,200 a year, that
goes up or down depending onwhat people vote for, or
(25:17):
whatever expires, I know that Ihave some things I pay once a
year at the first of the year, Iknow I have some things I pay
throughout the year at differenttimes of the year. And I account
for it and I budget for but theonly way I know that is because
I was tracking. And trackingnowadays only means you have an
(25:42):
app, an application that you canlog into, you don't even have to
download it, you can do itonline, and you put in your
checking account. And all thetransactions that go through it,
you put in your savings accountand money that you transfer to
it both ways transfer out of it.
And your credit cards, if youhave five credit cards that you
(26:04):
have a balance, you should betracking five credit cards,
because at the minimum, youshould be making a payment and
then need to know how much youowe. You don't need to know the
details of your mortgage or yourcar loans, or the balance, you
just need to know how much themonthly payment is. That is the
(26:25):
basic that is the start ofgetting your personal finances
under control. I've talked aboutthat in detail. Under episodes I
call tracking. If you see anepisode with the tracking title
somewhere in the title, that'swhat I'm talking about. The next
(26:45):
step after you've done that forat least 30 days, is creating a
budget. Tracking is whathappened in the past. A budget
is what's gonna happen goingforward in the future. Get in
the habit of looking at yourbudget before you spend money.
(27:06):
If you budget $1,000 forgroceries, and you keep that up
to date on your actual, you'llknow what your balance would be
for groceries. So when you gobefore you go to the grocery
store, know how much money youhave put aside for groceries and
(27:27):
try to stay in that limit at thebeginning. If you may go over
the limit, you can move moneyfrom one category that is less
important, and to groceries sothat you're not overspending.
That is what a budget is for isfor you to plan for the future.
(27:52):
And for you to look at as you gothroughout the month. Know how
much money you've put aside forthat category before you spend
the money. I've talked aboutallocating money, every time you
get paid, and your checkingaccount, course you're going to
(28:15):
enter that in your tracking. Andthen in your budget software in
your budget spreadsheet, have acolumn call it money allocated
money that you set aside to onlybe used for this particular
purpose. That's given your moneya job to do so every time you
(28:36):
get paid. If you get $1,000 Aweek, you put $1,000 at the top
income. Where are you gonnaspend that money? You're gonna
put 200 towards rent and 100towards utilities and whatever
balance towards gas andgroceries and
(28:57):
maybe some clothes. Fine. Yougot then before you spend the
money, come back and look. Howmuch money have you allocated
for that category. So you know,you don't go over that is
keeping you on track and controlyour money, then you need to
(29:22):
plan for protection. Have youhave all the correct insurance,
homeowners insurance, autoinsurance, health insurance,
life insurance if you have afamily, children involved?
Because if you lose your lifedue to an accident, you need to
replace your income for yourspouse or how are they going to
(29:45):
survive? Disability Insurance.
If you get disabled due to anaccident and you're unable to go
to work. You need to replaceyour income. That's is called
protection. You're protectingyourself For some bad event that
may or may not happen, plan forthe worst, hope for the best.
(30:06):
And savings. Build up a savingsaccount for your emergency fund.
And just don't put it in asavings account and say, I have
$5,000 in saving for theemergency. What's an emergency?
Category? Is that in aspreadsheet? What $5,000 How
much are you going to use it forwhat event that may happen?
(30:29):
Maybe $1,000 for car repair,maybe $2,000 For replace
appliance that goes bad, maybe$3,000 for health care for
doctor bills, and cases anaccident and one yet your child
children, maybe breaks an arm orwhatever that categorize your
(30:51):
emergency funds so you know whatyou can use it for and how much
you have there. You can shiftthings around in the event
something happens. That's okay.
But give yourself an idea. Whatare you going to use it for? As
what is the emergency, you'regoing to take that money out for
(31:13):
us. And once you have anadequate enough money and
savings, and then you go toinvesting, Investing is for long
term financial goals, yourretirement, maybe your
children's education and theywant to go to college, maybe
they don't. You can save moneyand invest it and it'll grow
(31:37):
much faster because you usuallyget a higher rate of return and
you'll be glad you did. So
Hello, I'm your host Mr. Chuck. I retired
accountant turned truck driver,I reduce my debt in a relatively
short period of time. debtreduction to achieve financial
freedom takes commitment,confidence, determination.
(00:25):
Personal Finance basics, knowingthe basics about personal
finances necessary for debtreduction. Everyone should
understand the personal financesto plan and pay bills. This
includes savings for futurepurchases, and taking care of
basic needs first, before I getstarted, if there was a week
(00:49):
where I didn't issue a newepisode, I was because I was on
vacation and was unable to getback in time to get it uploaded
to my hosting provider. So sorryfor that, but keep on moving
forward. I have a link in myshow notes for an article I'm
(01:10):
referring to personal financepersonal finances, a term meant
to describe managing yourfinances through budgeting,
savings and spending. Thisinvolves long term planning and
considers potential financialrisks, retirement and estate
planning investments and howyour financial situation evolves
(01:33):
over a lifetime, personalfinances and corporates how you
manage all aspects of you oryour family's finances, both
short term and long term. Thatterm is also used to describe an
entire industry devoted to theservices and products designed
to help individuals manage theirfinances and take advantages of
(01:57):
investment opportunity. So whyis personal finances important?
personal finances a vital partof not only managing your day to
day financial needs, but alsoplanning your financial future.
The sooner you get a grip onyour personal finance, the
better your long term financialprospects will be for things
(02:20):
like investing or planning forretirement. By understanding the
elements of personal finance,you can better understand
opportunities to improve yourfinances this understanding can
help you budget for currentneeds while planning for long
term financial goals. So whatare the five areas of personal
(02:42):
finance one income, income asthe foundation, naturally, if
you don't have income, you'renot going to do a whole lot.
Number two spending. Spendingincludes the money for any
expenses you have. controllingthe amount of money you spend
can allow you to set aside moneyto grow your financial future.
(03:05):
So if you spend less, you cansave more. Three savings.
Savings includes any money fromyour income that you do not
spend, but set aside for thefuture. It is necessary to
provide for potential expensesplanned or unplanned. I think
another word for that would bean emergency fund. And then for
(03:27):
investing, investing isdifferent from savings. real
savings are what's left overfrom you income investments are
purchases that allow you to earnfuture income or savings.
investments may includepurchases of mutual funds,
stocks, bonds, or real estatethat you expect to give you a
good rate of return. Butinvestments come with risks. And
(03:50):
then number five protection,protection from financial risks
can be handled through thepurchase of life insurance,
property insurance, cows, anyinsurance, health insurance, and
things like that. So you haveincome, you have spending.
(04:11):
Everybody probably has thatinitial two down because that's
what they do. You work you makemoney, you spend money, or they
were you may be lacking is thesavings. You got to set a little
bit aside first and have alittle bit of savings to plan
for some expenses upcoming orsome unexpected, enhanced
(04:35):
emergency fund. Then we haveinvesting. Once you get enough
money set aside in your savingswhere you can meet your bills
that are coming up in thefuture. Then you have some money
you can invest and then five,protect everything that you
(04:55):
have. You need insurance to dothat and Insurance is
protection. And that's why whenyou get a mortgage on a home,
you they require the lender mayrequire to have mortgage
insurance. So if you did havefault insurance or pay them, so
that's their protection, thenthey require you to have
(05:17):
homeowners insurance. Ifsomething happens to the house,
a storm or tree or something,then they know it's gonna get
repaired or fixed or some typeof settlement. And they will get
their money because they're notlosing the value of the house.
And he have automobileinsurance. Same thing, if you're
(05:37):
in an accident insurance, eitherrepair your car, or give you
money, so to replace the car inthe future, so you're not
getting stuck with a loan withan asset that is totally
destroyed that you cannot use.
That's what insurance is forhealth insurance. It's the same
thing. Life insurance,disability insurance, all that
(05:59):
is meant to protect you fromsome future event that may or
may not happen, but it'sprotection, as gives you peace
of mind. So we have incomespending, saving, investing
protection are the five mainthings and personal finances.
(06:19):
The fundamental principles,there's 12, or those there are
12 basic principles ofsuccessful personal finance,
according to the JumpstartCoalition for financial
literacy, a nonprofitorganization that promotes
financial literacy education inthe US public schools. So number
(06:40):
one is know your take home payBe aware of your income before
you commit to any significantspending, such as credit card
debt, car loans, or a mortgage.
your take home pay is not thesame as your gross pay, your
gross pay is if you get paid bythe hour number hours you
(07:03):
worked, overtime included timesyour rate of pay at equals your
gross, then you pay income taxesoff of that he may make
contributions to a retirementplan or commonly known as a 401
K, he may make health insurancepayments, you may have had child
support come out there. So theamount of money that you deposit
(07:28):
in your checking account is yourtake home pay to is pay yourself
first. Set aside money from eachpaycheck for unexpected
emergencies and long term goalsbefore paying your bills, shoot
for 5%. If you can't take 5% andput it in a savings account,
start saving now ideally, youshould start saving for your
(07:50):
future. While you're stillyoung. The longer you save, the
more interest your savings willearn. The sooner you start, the
more you're gonna have later inlife pretty basic because of
compounding, and let your moneywork for you. If you don't start
(08:12):
saving until you're 55 you'renot gonna have much money set
aside for retirement. If youstart saving at 25 You can might
be able to retire early, becauseyou're gonna have plenty of
money because of compounding.
Compare interest rates, whetherit's savings for your future or
looking for the right creditcard, look for the best interest
(08:33):
rate first earn more interest onsavings and pay less interest on
debt. So for credit cards, youwant a lower rate on savings
account, you want a higher rate.
Be aware shop around rememberthe rule of 72 to figure out how
many years it will take timesavings to double divide 72 by
(08:59):
the interest rate of yoursavings. So right now, I'm
getting four and three quarterspercent interest. If I divide
that into 72, it's 15 years, somy money will double every 15
years at that rate of interest.
If I had a percent rate ofinterest, it would be nine
(09:20):
years. So it really helpsnever borrow what you can't
repay, make sure you can pay offwhat you owe. This will improve
your credit overall and keepyour debt manageable. That's why
I talk about those percentages.
When I talk about a budget, yourmortgage loan should be around
(09:43):
25 to 30%. Your car loan shouldbe somewhere around 10 to 15% of
your gross pay. And that's why Ido that that helps keep your
borrowing under control so youdon't get to borrow too much
from only for one thing, andthen you're stuck. He might be
(10:03):
house poor, because 80% of yourmoney is going into paying for
your home. But you're not goingto do anything else you're going
to be barely have enough moneyto eat and go to work. So that's
six, never borrow what you can'trepay, treat credit cards like
cash. If you don't have the cashto buy something, you don't buy
(10:26):
it on a credit card. So you getpaid weekly, you pay off your
credit card weekly, you get paidevery two weeks, he should be
able to pay off your credit cardevery two weeks, treat credit
cards, like cash in your wall,stay out of trouble. Don't
borrow money, too far inadvance, pay too much for a car
(10:49):
and go like an eight year loanat $1,500 a month. He really can
you afford that? Know what youcan afford before you go
shopping, if he can afford $800A month car payment, and you're
pretty comfortable with that.
And it's not going to put astrain on anything else in your
budget. That's what you shouldshop for somewhere around $800.
(11:12):
The bigger down payment youhave, then the less you have to
borrow, the lower your paymentsgonna be and the less interest
you'll have to pay this a NoteSeven create a budget, they say
and say that said set up anannual budget of income and
known expenses. Use this as aroadmap to build your savings
(11:36):
while living within your income.
We got to take that fartherahead. You want to set up a
monthly budget. So you know yourexpenses coming up every month
for the whole year. So you doJanuary, February, March. And
then you also set up yoursavings, you set up all your
(11:59):
credit card payments, you set upall your needs first, housing,
transportation and food, thenyour wants clothing,
entertainment, car, new car,whatever your goals, whatever
you want to save for a future,those type of things, and know
how much you need every month,where it's gonna go. Sign your
(12:22):
money to a category, know thatit's going to be paid off and
try to do it so that you're havethe money in your checking
account, and July to pay foryour August things. And you'll
be happy you did so rememberthat high returns mean high
(12:47):
risk, high returns on investmenttypically means you're going to
have to take higher risks. Thefirst define your investments
can spread the risk aroundprotecting your investments. The
younger you are, the more riskyou can take. The older you are,
the less risk you're gonna take.
But diversification is key tolong term investment. Spread
(13:08):
your money around don't puteverything in one basket.
Because if you put everything inone basket and that one thing
fails, you lose all your money.
If you spread everything aroundand one thing fails, you're
hardly even notice it. Nine,don't expect something for
(13:30):
nothing. Be wary of get richquick schemes, if they are real,
everyone would already be doingthem. If it sounds too good to
be true, it probably is. And geta second opinion, especially
when you're talking to a lifeinsurance salesperson, somebody
that wants you to buy some typeof an annuity or some type of
(13:54):
insurance product. Get a secondopinion from a different type of
financial professional. Anddon't ask friends, family or
neighbors because they may ormay not know. Plan your
financial future take time towrite down your financial goals
both short term and long term.
Then work out a realisticroadmap to get you to these
(14:17):
goals. So say for example,you're saving up and you want to
buy your first home. How are yougonna do it, write it down,
write down the home you want theneighborhood, the price range,
how much down payment you'regonna need and how much you can
afford, and then work towardsgetting your down payment and
(14:39):
seeing if everything that you'relooking at is reality in real
life and may be that yourmonthly payment may be lower
than what you're gonna be ableto get. So you may need a bigger
down payment as called PlanningAhead Your credit past
determines your credit future,your credit record is kept for
(15:04):
years by credit bureaus. Ifyou're having trouble paying
loans, or credit card debt, thatrecord can hurt your chances of
getting credit in the future. Ifyou have a lot of debt, you
probably already know you havebad credit. If you get things
under control, and he's maketimely payments month in and
(15:24):
month out, and you pay off someof your credit cards, your
credit score will get better byinsurance. That's protection.
Health Home auto and lifeinsurance can protect you and
your loved ones from financialhardship and the event of
accident or illness. That alsoin there is a disability income.
(15:48):
If you're unable to work for dueto an illness, you have short
term, you have long term, andit's designed to replace your
income for either a short periodor a long period depending on
what's going on. So the more youmake, the more you need.
Disability Insurance is notbecause you didn't die, it's is
(16:13):
because you're unable to workdue to an illness or an injury.
And then that would kick in toreplace your income they used to
make him call protection. And ifyour underwear unsure of all
these things, you should studyhim up and get to know them and
(16:33):
get them memorized. I have alink in my show notes for this
article. And it's a greatarticle. The first five things
you need is income spending,savings, and investing
protection. That's the basics.
Know your income, know whereyour money is going. Save a
(16:55):
little bit, start investing soonas you can have protection to
protect yourself. Then afterthat and expands to know your
take home pay, pay yourselffirst, start saving now compare
interest rates. Remember therule of 72 Divide your interest
(17:15):
rate into 72. That's how manyyears will be before your money
doubles. Never borrow what youcan't repay, create a budget I
say monthly. Remember that highreturns means high risk, don't
expect something from nothing.
Plan your future. Your creditpast determines your credit
future. And a bad credit scoreis gonna cost you more for
(17:39):
insurance, whether it'shomeowner insurance, car
insurance, health insurance,whatever it is, you're gonna pay
more for insurance becausethey're gonna see you as a
higher risk for non payment. AsI said, I'm gonna be going on
vacation this may or may not beuploaded in time because I right
now it's May and I am unable todo it because I have no more
(18:04):
minutes left. But I'm going tobe out of town for at least six
weeks or longer. If I don't getback in time, there may be a
couple of weeks left before thisepisode comes up and you're be
able to hear it. But I hopethat's not too much of a burden
on you. And if you find thispodcast useful, please go to my
(18:28):
footnotes, I have a link for mysubscription plan where you can
go there and make acontribution. Or you can go to
reduce that increase wealth.com.
Click on support and do the samething. Thank you for all those
(18:48):
who've done it in the past. I'llbe back in one moment with my
final thoughts. If you'reinterested and learning about an
online software that helpedmyself get out of debt, it does
tracking, budgeting, and keepstrack of all your assets and all
your debt and even tells you howmuch and when to transfer money
(19:13):
into your savings account andhow much and when to transfer
money to your debt and whichdebts to pay off in order.
First.
It's not cheap. It's a one timepayment. But it will definitely
be an investment something andyourself and an investment in
(19:34):
your personal financial life. Ifyou're interested, send me an
email at reduce debt increasewealth@gmail.com and I'll send
you the information about thisonline software that works great
for me. Income spending, savingsand fasten protection. Know your
(19:59):
net The income, know where yourmoney is going, say money, and
VAs money. Remember the rule of72, the interest rate that
you're receiving divided into 72gives you the number a year your
money will double. But how arewe gonna achieve that plan for
(20:24):
your future, know what yourexpenses gonna be in the next
three months? Is there anythingcoming up that you pay semi
annual or quarterly, or maybeeven once a year, have any clue
what those expenses may or maynot be and how much they are?
(20:44):
Well, in order to understand andget to know these things, and
your personal finance in yourlife, because everybody's
different, there's a few thingsyou have to do. And there's one
thing you have to do before youcan start a budget. Before you
can do a monthly budget or ayearly budget, or whatever
(21:07):
you're doing it for, I recommenddoing it for a month, and do it
for January, February, March,April may do it all in a
spreadsheet, so you can see it.
And then as the months go, bythe first year, you'll come up
on some expenses that you forgotabout. And now you know about
are they need it? Can you getrid of it? Can you cancel them.
(21:30):
And that's how you start gettingyour personal finances under
control. I gotta say, a lot ofpeople out there, I'm not gonna
give a percentage, because Idon't know, they go to work,
they make money, they make goodmoney, they think they're making
pretty good money, they paytheir bills every month, they
(21:54):
spend all their money, and theydon't maybe have $500 in a
savings account, if they evenhave a savings account. They're
the only investments they mayhave a be through work if they
have a retirement plan throughwork. And they may or may not
even be utilizing that. And thenall of a sudden, they lose their
job. Or they get injured andthey can't work. And now they
(22:17):
have no money to pay theirmonthly bills because they have
no income, and may loseeverything because of that. So
getting your personal financesunder control and knowing what's
going on is important. Andhaving that protection, there
can help you get through somefinancial hardships that may
(22:40):
come along in your life. It'snot when they're not if they're
gonna come along, it's just amatter of when, if you can avoid
them good for you. But beprepared, prepare for the worst
and hope for the best. The firstthing you got to do is start
tracking your money that's goingthrough their savings to your
(23:02):
checking account, your savingsaccount, all your credit cards.
So what is tracking? When I wasin high school and college, that
would have been called a checkregister. Nowadays, the banks
are online, you can go in andlook at your bank balance. So if
(23:24):
you're unsure how much money youhave in your checking account,
you go online and you look, oh,I have $1,500 I can buy this for
$500 that by doing that, did youconsider some things you need to
pay in the near future, likerent, utilities, gas for the
car, food, things like that?
(23:50):
Probably not. Because you werejust focused on buying that one
item. And he was just checkingto see if you had enough money
to buy it. But that is not theway to go. So you need to track
everything and by tracking youwill know your net income, your
take home pay, because that iswhat you're gonna see going in
(24:10):
your checking account. And thenwhen you pay your bills, your
rent your utility, your carpayment, all your credit card
bills, your groceries, yourfood, groceries, your dining out
your gas for the car, insurancefor the car, homeowners
insurance, life insurance,whatever instruments you have,
(24:33):
when you pay those, you'll beaware of what you have to pay,
and to generally a good idea ofhow much you're gonna pay. I
know that my homeowner'sinsurance is due in September
and it's somewhere around 1000bucks, plus or minus a few 100
(24:55):
depending on what the insurancecompany does. I know my Real
estate taxes are due in January,and June on the 20th every year,
and it's about $2,600, a half,or about $3,200 a year, that
goes up or down depending onwhat people vote for, or
(25:17):
whatever expires, I know that Ihave some things I pay once a
year at the first of the year, Iknow I have some things I pay
throughout the year at differenttimes of the year. And I account
for it and I budget for but theonly way I know that is because
I was tracking. And trackingnowadays only means you have an
(25:42):
app, an application that you canlog into, you don't even have to
download it, you can do itonline, and you put in your
checking account. And all thetransactions that go through it,
you put in your savings accountand money that you transfer to
it both ways transfer out of it.
And your credit cards, if youhave five credit cards that you
(26:04):
have a balance, you should betracking five credit cards,
because at the minimum, youshould be making a payment and
then need to know how much youowe. You don't need to know the
details of your mortgage or yourcar loans, or the balance, you
just need to know how much themonthly payment is. That is the
(26:25):
basic that is the start ofgetting your personal finances
under control. I've talked aboutthat in detail. Under episodes I
call tracking. If you see anepisode with the tracking title
somewhere in the title, that'swhat I'm talking about. The next
(26:45):
step after you've done that forat least 30 days, is creating a
budget. Tracking is whathappened in the past. A budget
is what's gonna happen goingforward in the future. Get in
the habit of looking at yourbudget before you spend money.
(27:06):
If you budget $1,000 forgroceries, and you keep that up
to date on your actual, you'llknow what your balance would be
for groceries. So when you gobefore you go to the grocery
store, know how much money youhave put aside for groceries and
(27:27):
try to stay in that limit at thebeginning. If you may go over
the limit, you can move moneyfrom one category that is less
important, and to groceries sothat you're not overspending.
That is what a budget is for isfor you to plan for the future.
(27:52):
And for you to look at as you gothroughout the month. Know how
much money you've put aside forthat category before you spend
the money. I've talked aboutallocating money, every time you
get paid, and your checkingaccount, course you're going to
(28:15):
enter that in your tracking. Andthen in your budget software in
your budget spreadsheet, have acolumn call it money allocated
money that you set aside to onlybe used for this particular
purpose. That's given your moneya job to do so every time you
(28:36):
get paid. If you get $1,000 Aweek, you put $1,000 at the top
income. Where are you gonnaspend that money? You're gonna
put 200 towards rent and 100towards utilities and whatever
balance towards gas andgroceries and
(28:57):
maybe some clothes. Fine. Yougot then before you spend the
money, come back and look. Howmuch money have you allocated
for that category. So you know,you don't go over that is
keeping you on track and controlyour money, then you need to
(29:22):
plan for protection. Have youhave all the correct insurance,
homeowners insurance, autoinsurance, health insurance,
life insurance if you have afamily, children involved?
Because if you lose your lifedue to an accident, you need to
replace your income for yourspouse or how are they going to
(29:45):
survive? Disability Insurance.
If you get disabled due to anaccident and you're unable to go
to work. You need to replaceyour income. That's is called
protection. You're protectingyourself For some bad event that
may or may not happen, plan forthe worst, hope for the best.
(30:06):
And savings. Build up a savingsaccount for your emergency fund.
And just don't put it in asavings account and say, I have
$5,000 in saving for theemergency. What's an emergency?
Category? Is that in aspreadsheet? What $5,000 How
much are you going to use it forwhat event that may happen?
(30:29):
Maybe $1,000 for car repair,maybe $2,000 For replace
appliance that goes bad, maybe$3,000 for health care for
doctor bills, and cases anaccident and one yet your child
children, maybe breaks an arm orwhatever that categorize your
(30:51):
emergency funds so you know whatyou can use it for and how much
you have there. You can shiftthings around in the event
something happens. That's okay.
But give yourself an idea. Whatare you going to use it for? As
what is the emergency, you'regoing to take that money out for
(31:13):
us. And once you have anadequate enough money and
savings, and then you go toinvesting, Investing is for long
term financial goals, yourretirement, maybe your
children's education and theywant to go to college, maybe
they don't. You can save moneyand invest it and it'll grow
(31:37):
much faster because you usuallyget a higher rate of return and
you'll be glad you did. So
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