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Personal Finance 101
By David Berky
The subject of personal finance is very broad, but as a beginning, I would like to
discuss what I consider the foundation of personal finance: security.
Security
Security to me means that I am prepared for the "hit by a bus" scenario.
I have life insurance to provide for my wife and children. Health, disability, auto
and home insurance policies also provide me additional protection in their respective
areas. I also have a list of where these policies are, who my agents are, phone numbers
and basic policy information (#s, amounts, costs, etc.) I keep this information both in
a file at my house and in a safety deposit box at the bank (a friends home will also work
- think: "house burns down" scenario). Also my wife and my brother and sister-in-law
who live nearby also know where these things are.
I also try to maintain an emergency fund of cash in a bank account or money market
account (with checks) so that I am prepared for a financial disaster, layoff, or
natural disaster. It took several years to build up this cash fund. I started with
a goal to have enough cash for 6 months of my normal financial needs (mortgage, food,
insurance, transportation, etc.). Now I am trying for 12 months' worth. I do this by
saving a little each month, and "investing" a portion of all "found" money (gifts,
inheritances, tax returns, anything unexpected).
I have a will and update it each year around New Year's to reflect any changes in
my life during the past year (new children, new home or business, etc.). Most people
don't need an extensive will, the forms you buy at your office supply store will do.
But in some states if you die without one, watch out. What happens to your money and
even your children could be entirely up to some state or court appointed official.
Stability
The next level of personal finance is stability.
Stability to me means that first of all I live within my means. I don't spend more
than I earn. Otherwise I am spending my savings, investments, emergency money, or
getting into debt. I have a lot of debt, but most of it is real estate which is
producing some income. I try to avoid credit card debt and purchase everything with
money I already have. I don't buy things expecting that next month I will have more
money or I will get a big raise or promotion. You can't sell me a car based on a
monthly payment amount; I want to know the final price!
In order to make sure that I am living within my means, I created a simple budget and
I track my expenses using Simple Joe's Expense Tracker. I can tell how much I have
spent in each budget category and I know when to keep a closer eye on certain types
of expenses, or when and where I can cut expenses and what I can live without in order
to stay within my budget. Counting pennies is pretty tedious, but tracking where the
dollars go can be eye-opening.
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