Personal Finance Ology

Have you taken a New Year resolution of managing your personal finances?
Most people who have taken financial resolutions have forgotten to follow them and this is the reason behind the surging level of debt in the US. If you’re one among them who have taken fake financial resolutions, you must be aware that you need to plan your personal finances to stay away from debt.

Though credit card debt management companies are there to assist people in making their debt more manageable, it is better to stay aware of your finances so that you do not need to seek help of professional companies. Here are some simple ways of managing your personal finances.

• Make a frugal budget:

Budgeting is the most effective way of personal finance management. Unless you follow the budget and keep a close watch on your finances, it is not possible for you to stay within your means. Make a frugal budget so that you can keep a track on what you make each month and how you spend it. If you can determine where each penny goes, you can immediately get better results. You must follow the budget that you make to get best results.

• Pay off your debts:

Nothing can be more effective than reducing your credit card debts. Debts are something that can have a terrible impact on your financial life. Therefore, you need to make sure that you save enough money and pay off your credit card debts. You can even seek the help of a credit card debt management company that may help you repay your multiple creditors in easy and affordable monthly payments.

• Stop using your credit cards:

Credit cards may apparently seem to be attractive, but you must know that ineffective usage of credit cards may get you into a serious financial mess. The more you use your credit cards, the more you will push yourself towards the debt hole. You must always carry cash in your wallet and stop shopping as soon as you exhaust cash. Don’t go for purchasing things on credit.

• Contribute to your retirement plan:

If your employer offers a retirement account, you must make sure that you contribute money to that account. Nothing can be better than planning your retirement. Contribute a part of your monthly income to the retirement account, the 401(k) account. This will act as a future savings account or even an emergency fund.

Thus, with the present economic conditions, it is extremely necessary to manage your personal finances in order to stay away from credit card debt. You can get help from credit card debt management companies to eliminate your unsecured debts, but it is always better to stay safe than sorry.

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Everyone seems to say that buying a home is always better than renting. Well tell that to all the people in the states hardest hit by the subprime crisis. They now know that there are risks associated with owning a home. It isn’t always a good idea to buy. I plan on giving you a few things you should think about before making the plunge into owning your new home.

Reasons to buy:

You plan on settling down and would really like someplace more permanent.

Over the long term, they tend to be good investments. The population keeps growing but land doesn’t, the price of homes with land should theoretically keep going up.

You are benefiting from your monthly payments, not your landlord. Often your payments are going to be larger when you are buying your own home, but some of that money goes to pay down the mortgage. This is money you will get back when you sell.

Reasons not to buy:

You plan on moving soon. Realtors take out huge chunks of the sale price. If you buy then sell shortly after, it is hard to get all of your money back. Even if you are in a good market, the price of the house would have to go up significantly just for you to break even.

If you don’t need a lot of space. Sharing an appartment with another person or two is often cheaper than buying your own place. If you don’t mind living with others, you could probably save more money if you shared an apartment with a few other people.

You are lazy and don’t like taking care of a yard. Either you have to do the work yourself, or you have to hire someone to mow the lawn. This costs you either time or money which I’m sure you don’t have enough of.

Things to think about before you buy:

If you are really interested in saving money, do the calculations before you buy. I would assume that the value of your home stays the same to be on the safe side. To make a like comparason of home vs rental, figure out your monthly payment for both house and rental. Make sure you include all the small things that go along with a house like maintenance, taxes and utilities.

For an amortization schedule and calculator check out this amortization calculator. Here you can see how much you actually are ‘paying down the house’. Most people are surprised to see how little of it goes to pay down the house. In the first few years of home ownership, most of your mortgage is going to pay interest to the bank. Very little of it is going to pay off your home.

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Savings Accounts
It is always a good idea to have an emergency fund set aside for times of uncertainty. The normal recommendation is to have at least three months of expenses saved. With that being said here are a few options you have to choose from so that you can assure yourself a safety net is there to catch if the unexpected occurs.

Basic Savings Account

The Basic Savings Account is a type of account you can use to store your emergency cash. I wouldn’t recommend using it for large amounts of cash being that the interest rates on the Basic Savings Account is usually pretty low and you could find other accounts with higher interest rates for your large lump sums of money so that you can earn more money on your money.

With this type of account there may be fees associated with it if you don’t meet the minimum balance or if you perform more transactions beyond the minimum amount allowed. Therefore, it is important for you to ask your bank representative about any fees associated with this type of account before you consider opening one.

High-Yield Money Market Accounts

These accounts can be compared to a checking and savings account rolled into one. On the savings side they pay an interest rate, which is usually higher than a Basic Savings Account and on the checking side you have the ability to write a limited amount of checks. However, with a High Yield Money Market Account you will need a higher balance to open one compared to the required minimum balance of a Basic Checking or Savings Account. Another difference in High Yield Money Market Accounts is that you normally would have to go to an online bank to find one. Online banks are able to offer higher interest rates due to their minimal expenses they incur in relation to a physical bank such as Chase or Bank Of America.

Once you begin to look around for online banks offering High Yield Money Market Accounts, you are sure to find many other institutions offering them however it is important to do your research on these offers. I would recommend, for those just starting out, to go with institutions that are FDIC insured this way you know your money is safe.

Certificates of Deposit

A Certificate of Deposit is a way to earn higher interest on your money. However, it is different from the Basic Savings Account and the High Yield Money Market Account being that you can’t make any transactions on the account. You can’t withdraw any money or write checks on the account. You earn higher interest rates by keeping your money in the account for a certain amount of time.

Basic CD’s

When you invest in a Basic Certificate of Deposit you are committing your money to the bank for a certain period of time. The longer you commit your money to the bank the higher interest rate you will receive. This is because any money that you deposit into this account the bank will use to offer loans to it’s customers at a higher interest rate. Therefore, the longer you commit to leaving your money untouched the higher compensation you get because the bank will be able to make a profit off of your money. This is the business of banks.

The normal time commitment can range from three months to five years. When you have completed your time commitment you are free to take your money and your earnings or you could rollover the balance into another CD. In some instances your bank may automatically renew your CD therefore it is important to ask your representative how they handle that and ask to be notified once your CD has matured. If you have to withdraw your money before the end of your time commitment you will be charged a fee. Therefore, it’s important to decide how much money you can afford to put away for the length of time required by your bank.

There are many different types of CD’s you could choose from. Some banks offer a variety of CD’s while others may offer one or two options. Just know that just because you are banking with one bank that doesn’t mean that you can’t go to other banks and compare their investment options with your current bank. You may find a better option somewhere else.

Filed under: banking, money, saving by admin - 140 Comments →