 Set financial priorities and goals to gain power over your life. Each of us has our own particular relationship to money. Some want as much of it as possible and devote significant time and energy to its pursuit. Others prefer to live simply on minimal resources. Perhaps most of us fall somewhere in the middle, wanting to live comfortably without sacrificing the quality or balance of our lives. No matter what you want your money to do for you, learning the basics of money management will help you make it happen.
Why Financial Management Is Important Most people find dealing with personal finances a chore. People are loath to manage their finances for all sorts of reasons, including not being comfortable with math, not having time, or even being fearful of finding out that there's just not enough money in the bank to cover the bills. Being willfully ignorant about your finances is not a smart strategy whether you are flush with cash or not. Having a clear understanding of your finances is a crucial first step in maintaining or improving your financial health and avoiding unnecessary stress. Remember that financial knowledge yields financial power. Learning About Financial Management To improve your personal financial management skills, you must learn what is involved. The different aspects to financial management include:
Budgeting Drafting a personal budget is one of the best ways to control your spending. Until you know what you earn and spend, you can't figure out how to live within your means. Don’t be intimidated by the process. Creating a budget can be simple and easy. Banking and Saving When it comes to deciding where to keep your hard-earned money, not all banks are the same. Fees vary a great deal. Banks may charge you for visiting a teller, speaking with a customer service representative by phone, viewing online statements, paying bills online, overdrawing your account, or many other events. Choose a bank that has the best balance of customer service and fees, considering the types of services you plan to use the most. Checking accounts. Many checking accounts waive certain fees if you have your paycheck directly deposited into your account. Most checking accounts also come with debit cards, which you can use to withdraw money from your account and to pay for items as you would with a credit card. Savings accounts. For savings accounts, ask about interest rates, minimum balances, and whether you are allowed only a certain number of transactions per month. If so, you will generally be charged for each transaction over the limit. Protect yourself from identity theft. Be sure to ask about the bank's policies to protect you from fraud and identity theft if someone uses your debit card without your permission. Paying Taxes File your tax return on time. If you can't, it's easy to get a four-month extension by filing a simple form. However, an extension does not extend your time to pay any taxes you owe; you'll have to pay these when you file for the extension. Keep all documents related to your return for at least three years after you file. Investing When considering ways to invest your money, some common possibilities include (in roughly increasing order of risk): certificates of deposit (CDs), bonds, mutual funds, real estate, commodities, stocks, and business ventures. The riskier an investment is, the more important it is that you have some expertise or get assistance from a competent agent. Also consider how quickly you will be able to cash out of the investment in case you need the money. Managing Debt Most people have some debt, whether for a home loan (mortgage), car loan, student loan, or credit cards. The key is to manage debt so that it does not get out of control. The best strategy is to control spending and avoid burdensome debt in the first place. But if you find yourself struggling with debt or a blemished credit record, you're not alone. If this happens, be proactive. Dealing with too much debt. You can conquer debt with a variety of methods, from negotiating payment plans with your creditors to -- in extreme cases -- declaring bankruptcy. Improving your credit report. To rehabilitate your credit report, ask the credit bureaus to remove out-of-date and erroneous information. Then focus on getting positive information into your record. And don't fall for the numerous credit repair operations that charge money for tasks that you can easily handle on your own. Retirement Planning If you haven't already started planning or saving for retirement, there's no time like the present. Popular retirement plans such as 401(k) plans allow you to put aside money for retirement, while at the same time reducing your current tax bill. If your employer offers a 401(k) or other retirement plan, it makes sense to contribute as much as you can afford into the plan -- particularly if your employer matches your contribution. Estate Planning Even if it feels too early -- or too creepy -- to think about what will happen to your finances when you die, it's a good idea to tackle this planning sooner than later. Having a will in place will ensure that your property is inherited by the people you choose. And other estate planning tools, such as living trusts, can save your inheritors significant tax dollars and attorney expenses. Money is better than poverty, if only for financial reasons. -- Woody Allen © 2010 Nolo
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