The 11 Most Important Personal Finance Planning Tips for Beginners (That Nobody Told You)
How to get out of debt
If you're out of debt, congratulations! If not, I want to help you get out. It's never too late.
This might sound over-simplified, but the best way to get out of debt is to make more money.
Find ways to boost your income, cut back on expenses,
and identify opportunities for debt relief like balance transfers or consolidate your loans with a personal loan from a lender like SoFi.
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Personal loans can be perfect when you're dealing with debt management problems and need relief fast because they typically offer flexible terms that can give you quick cash now while allowing time to get yourself in order financially without being crippled by high monthly payments that can often accompany traditional borrowing options like home equity loans and HELOCs.
Unlike other loans, student loans and mortgages which require collateral, credit history checks, minimum down payments, employment verification or previous borrowing experience;
personal loans are simple and convenient as you only need an active checking account for collateral.
The process is simple - log into the online application form with your checking account details then fill out an easy application form; once approved, funds will typically show up in your bank account within 24 hours so you can enjoy a little peace of mind. And unlike some payday lenders, SoFi offers competitive rates and provides low fixed rates that let you budget better and stay on top of your finances easier.
Don't let worries about getting enough money hold you back anymore. As long as you're working hard at boosting your income, cutting costs and taking advantage of opportunities for debt relief like balance transfers or consolidating loans with a personal loan from SoFi;
there is no limit to how far you can go. We all start somewhere, even if it feels like it sometimes doesn't seem possible.
With these 11 tips that nobody told you, everything will be possible - just take it one step at a time and don't forget: Today's success equals yesterday's failure plus today's persistence. Good luck!
How to start saving
Start by putting 10% of your earnings in a retirement account. Retirement should be one of your first goal, because time is on your side and every year you delay will make it more difficult to save for retirement later on.
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Open a Roth IRA as soon as possible, which allows you to invest money on a tax-free basis and pay no taxes when the money is withdrawn at retirement age.
You can put away up to $5,500 each year ($6,500 if you're over 50). What's more, the power of compound interest will start working for you right away with no risk involved since the investment can't lose money and there are never any penalties for withdrawing the funds early.
Your 401(k) contributions will also help grow your retirement savings. If you don't have access to a 401(k), then consider contributing up to $18,000 ($24,000 if you're over 50) into an Individual Retirement Account or Traditional IRA each year until 2019.
Unlike the Roth IRA, there is an income limit for how much someone can contribute; individuals earning more than $135,000 annually cannot contribute to a Traditional IRA. If that applies to you then go ahead and contribute the maximum amount allowed in your 401(k).
Tip #1: Pay off high-interest debt first! Studies show that people who prioritize paying off credit card debt have higher levels of wealth than those who do not. So start making progress towards this goal by setting aside $100 from your monthly budget to dedicate exclusively to paying down debts.
Tip #2: Stop spending so much on nonessentials!
Tip #3: Check out your employer's benefits package and use them before they expire!
Tip #4: Establish a monthly budget and stick to it—to simplify things, set a goal of reducing expenses by 5%.
Tip #5: Make saving automatic. Commit yourself to transferring a certain percentage of every paycheck into separate accounts earmarked for future expenses like housing, college tuition, emergencies, or retirement—whatever you want them to be used for.
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Withdrawing money automatically ensures that you won't spend it elsewhere instead of saving it like you planned. That way, you'll always have some cash on hand for unexpected situations without ever having to think about it again.
The trick is to automate whatever works best for you: Savings deposits, investing, bill payments anything. As long as you make sure your money is being directed where it needs to go automatically, you'll ensure that nothing slips through the cracks and keeps accumulating in your checking account.
Tip #6: Create a vision board! By visualizing what we want our lives to look like in five years (the ultimate goal), we give ourselves permission to take small steps now toward our larger goals so that eventually we'll get there sooner rather than later.
When it comes to saving, the only way to reach your goals is by starting today. We can't wait for a change in salary, a financial windfall, or even retirement to begin socking money away for tomorrow. It all starts with you.
How to create an emergency fund
One of the most important, yet difficult, parts of managing your finances is to have an emergency fund. This is a fund you have to save that will be used in case of emergencies that may not be covered by insurance or disability benefits.
Ideally, this should be at least three months' worth of living expenses and can take time to build up. Start with saving a little bit each month and then add to it over time so that you're always on track to build up your emergency fund as quickly as possible.
You don't want to put yourself in a position where you suddenly need money but are without funds. That's when credit cards become tempting, but they often come with high interest rates that can really wreak havoc on your budget if they're not paid off before their due date. Paying them off monthly might help, but try to avoid using them unless absolutely necessary because you'll end up paying more in the long run.
In order to get around this conundrum, set aside some money each week and keep it separate from what you normally spend your paycheck on. If something comes up where there's an unexpected expense, use these funds instead of turning to debt.
It can seem hard at first to pull together extra cash every week but once you start doing it habitually and see how much easier life becomes when you have that safety net there will be no looking back!
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For example, even just $5 a week is $60 per year and saves you from having to turn to expensive short-term solutions like payday loans. By creating an emergency fund, you’ll also be able to sleep better at night knowing that whatever may happen there’s a financial plan in place that won’t harm your credit score or leave you struggling with debt.
Saving money doesn't have to be an all-or-nothing proposition: many people make progress by starting small and making small changes to their habits overtime. Whether you decide to move away from your current lifestyle a little or go cold turkey overnight, the end goal is saving for emergencies and building up your savings account!
Once you've reached the point where you feel comfortable, transferring a portion of your emergency fund into stocks could make sense depending on your risk tolerance.
As always, consult a professional for advice about any potential investments.
How to invest your money wisely
When you're young, it's easy to think that your money will magically save itself. However, the earlier you start to invest your money wisely, the better off you'll be when you're older. Here are a few investment tips for beginners:
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- Start saving as soon as possible - if only one thing is learned from this list, make it this one! Saving allows compounding to work its magic and increase your savings at a faster rate. The best time to start is now!
- Stick with low-cost index funds and ETFs - over the course of the past several decades stocks have outperformed other types of investments on average. Buying an index fund or exchange traded fund gives your investment capital access to large numbers of companies at an extremely low cost.
These investments tend to do well in both up and down markets, so they are perfect for someone who doesn't want to spend too much time managing their portfolio. There is no guarantee that these types of investments will provide you with high returns, but they come very close!
- Maximize your 401k contribution every year - no matter how much or little money you can afford to put into your 401k each year, it's always worth contributing at least up until the company match threshold.
- Avoid debt whenever possible - not only does debt mean high interest rates which can eat away at any potential gains in your portfolio, but credit card debt also leaves borrowers more vulnerable should emergencies arise like job loss or medical expenses. It's important to pay off debt quickly before continuing investing and building your portfolio.
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- Diversify - having different types of investments in your portfolio ensures that you are less likely to lose all of your money in the event of another major recession or market crash. In addition, there is a greater chance that some of these investments will perform better than others during a given period due to differences in risk level.
For example, investors with short time horizons may benefit from keeping some cash on hand while those with longer horizons might prefer more volatile assets such as stocks or real estate. It's important to diversify based on your own personal goals and timeline.
- Use a financial advisor - although there are many online resources available to help people get started with their personal finances, it's still wise to use a professional when first starting out. A qualified financial advisor will be able to answer questions about anything from asset allocation to tax planning, giving you the knowledge needed to get started with investing wisely.
They can also take care of administrative tasks that you would otherwise need to complete yourself, including creating a living will and setting up a trust. This will give you the peace of mind that your affairs are in order and allow you to focus on the future.
Although it's tempting to try and do everything on your own, don't be afraid to seek out the advice of a financial advisor - it can make a huge difference in the long run.
Retirement planning 101
Many people know that retirement planning is important, but might not know how to get started. Here are the top 11 pieces of retirement planning advice offered by financial experts to help you get started:
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1. Diversify your investments and check them frequently. Diversification helps prevent losses in a particular asset class, said Rich Beals, a Certified Financial Planner from Oldfield Financial LLC. You can lose one type of investment and still come out on top.
2. Understand your risk tolerance and choose a plan accordingly. If you're willing to take more risks, then stocks might be best for you; if you'd prefer something more conservative, go with bonds or real estate investments; if you're seeking balance, choose both!
3. Get professional help. The decisions you make now could have major impacts on your future well-being, so it's worth hiring an expert advisor like a CFP® who can give you unbiased guidance about what steps to take next.
4. Think about legacy: What do you want the world to remember about you? A person’s legacy is often thought of as what they accomplished during their lifetime, says Lili Wright Morton, Chief Operating Officer at Pure Retirement Advisors Inc., but it’s also what we leave behind.
5. Remember that life insurance will protect your family after death. Buying life insurance now is easy - just head over to Insureon's website and fill out our simple form!
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6. Make sure your work benefits match your needs. For example, do you need long-term care coverage?
7. Consider these questions before buying life insurance: Do I need protection against permanent disability? Will my spouse survive me financially if I die suddenly?
8. Take advantage of tax breaks on contributions to workplace retirement plans through things like 401(k)s and IRAs. Contributions reduce taxable income, which can result in higher net paychecks throughout the year.
9. Work with professionals when determining health care options for yourself and loved ones before leaving employment or retiring from work; otherwise, choosing among plans may seem overwhelming and complex!
10. Figure out whether you should take Social Security early or late. There are pros and cons to taking Social Security early, late, or never, depending on your age, planned retirement date, and other factors.
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11. Educate yourself about financial topics like the annual required minimum distribution requirement. Find an online resource to educate yourself about personal finance basics such as wills, trusts, property ownership issues, annuities, charitable giving strategies, market fluctuations and more!
Most people know that retirement planning is important, but might not know how to get started. If you're looking for a retirement planning guide, there are a lot of great articles on the topic available on sites like Forbes and Money. Some of the most popular are 5 Simple Rules for Building a Million-Dollar Nest Egg and 9 Ways to Earn More in Your 60s.
In order to get started, take a look at some financial planning 101 information like how to choose a retirement plan. To help you find the right retirement account, see this helpful guide. When deciding what type of retirement account is right for you, think about your goals, time horizon, and withdrawal strategy.
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If you're not ready to invest yet but would like to start building up your savings for retirement, this article from Forbes on how much money Americans need for retirement has some great information that can help get you started.
Insurance basics
What is insurance? Why do you need it? Does every type of insurance have the same benefits? These are all questions that one must ask themselves before even shopping for insurance.
Here, we will look at the basics of what insurance is, and why you might need it.
The definition of insurance varies depending on who you ask, but most people agree that it’s a service where an individual pays a small fee each month in order to get compensation in case they experience a specific event.
In other words, when something bad happens to you or your property, you can use your insurance policy to recover losses.
For example: let’s say there was a fire in your house yesterday.
If this was not insured, the loss would be very expensive to cover without outside help.
However, if you had taken out homeowners' insurance with 20% coverage on fire damage then $4000 worth of losses would be covered and replaced by an insurer because the cost was less than 20% of $20000.
Generally speaking, most types of insurance offer similar benefits:
However, there are some differences between various types of insurance. Health Insurance usually covers hospital visits and doctor visits, while life insurance usually only covers death. Auto Insurance usually covers damages to another person's car when hit by yours as well as damages done to your own car in an accident.
In general, auto insurance is often the most commonly used type of insurance. A few more examples of different types of insurances include: homeowner's, renters', liability, disability income, and health. There are also many ways to buy these policies like through brokers or direct from an insurance company itself.
Lastly, there are two different options for payment that come into play when buying insurance - monthly or annual payments; monthly payments typically require higher rates. But monthly payments provide flexibility in terms of cancelling or increasing the level of coverage.
Whereas annual payments may be cheaper, they bind you to staying with that level of coverage until your contract expires. So now that we've gone over what insurance is and how it works, let's talk about a few more personal finance tips for beginners!
- Life insurance is the second most important financial decision next to your retirement plan. Buy enough so that you'll have sufficient cash flow after retirement. If a breadwinner in a family dies prematurely, life insurance provides much needed funds to maintain the standard of living expected by surviving family members.
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- Some smart moves include making regular savings deposits throughout your working years and taking advantage of employer-sponsored retirement plans such as 401(k). However, if neither option sounds appealing then opening up an IRA account has become increasingly popular among young adults. It is an investment account that is invested in stocks, bonds, and mutual funds. Withdrawals are taxed as ordinary income, which means that the investor will pay a high tax rate. IRAs have grown to be a significant part of personal investing since it began in 1974. This accounts for 40% of retirement assets in the US alone.
Some key considerations when it comes to getting insurance:
- Choosing the right coverage:
There are three main types of coverage: Liability, Property Damage, and Medical Payments. All three types usually come bundled together as comprehensive coverage. Liability insurance covers legal costs should you get sued for causing injury or damage to someone else's property. Property damage insurance covers the repair or replacement of your property in the event that it is damaged by someone else. Medical payments insurance covers the medical expenses of you and your passengers in the event of an accident.
- Shop around:
This may sound basic, but it's a crucial step to take when buying any type of insurance. Don't just go with the first company you find - shop around for different quotes and see what each company offers. Check reviews, especially if they are related to recent claims handling or customer service. And most importantly, never be afraid to ask questions!
- Renewal process:
Insurance coverage will generally renew automatically on your birthday for a period of time unless you let them know otherwise. This means that you are not obligated to re-evaluate your coverage at the beginning of a new year. You can either choose to leave it or change it depending on your current needs.
In conclusion, insurance is one of the most important parts of managing your finances and understanding it will help you make better decisions in other areas. This blog post covered the basics of insurance and introduced a few more concepts for personal finance. The hope is that this article gives you an idea of where to start when considering how to manage your money in the future.
How to build good credit
A good credit score starts at when you are young. Paying your bills on time, and in full, is the key to maintaining a good credit score. If you already have a history of good credit, it is possible to add on some riskier behavior by paying off your balances quickly, or making periodic large purchases.
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However, these behaviors are not only subject to an inquiry on your credit report which decreases your credit score, but also to higher interest rates and larger insurance premiums which may negate any benefit from the added risks.
Having bad debt and low scores makes it difficult to get affordable loans or mortgages as well as jobs that pay a living wage. It’s more important than ever before to be mindful of how much money you spend and what steps you take in order to maintain a positive financial future. There are many ways to boost your credit score, here are a few:
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-Pay all of your bills on time
-Use less of your available credit
-Make payments early if possible
-Ask for lower limits on card accounts
-Get free copies of your credit reports once per year
-Don't close unused cards unless necessary.
Closing old account can hurt your average age of account-length, which will make your credit score go down.
-Open a new bank account every 6 months to keep older accounts active, even if they don't offer rewards programs or special features. Banks calculate activity differently so opening multiple accounts can help keep things evened out
-Avoid closing existing lines of credit; it's better to open new ones instead. Remember that you can use different banks for other services like checking and savings accounts
-It's best to sign up for automatic monthly payments because they don't carry the same negative effect as missed payment fees.
Even small amounts, such as $25 each month, will help protect your credit score. Be wary of those who try to convince you that there is some way to fix a poor credit rating overnight with little effort on your part. Yes, improving your overall finances does take time but it can happen with the right motivation and planning. With sound strategies, dedication and patience you too can build good credit.
Do you need life insurance?
Life insurance is typically taken out to provide financial stability and relief in the event of a death. It can be hard to figure out how much life insurance you need or even if you need it at all, but below are some questions to help you assess your risk.
Do I have any dependents? If so, how old are they? Do I have anyone who relies on me financially? What does my income consist of - do I work full-time, part-time, am I self-employed or just staying home with the kids?
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How much do I have in savings and investments like 401Ks, IRAs and stocks? Am I married or single? Do I have children under 18 living at home with me? Am I healthy now and able to work? Will future medical expenses increase my current needs for insurance coverage?
Based on your answers, you may decide that you're not going to need life insurance after all. Or maybe you find that the answer is more complicated than you thought. There's no one-size-fits-all answer here
- only a good conversation with someone who understands what's important to you will tell whether life insurance is something worth looking into. And if you're reading this post as a newbie to personal finance, I'd advise talking to an expert first.
The best way to save money on insurance is by shopping around and getting quotes from different companies. Just make sure to ask about things like premium rates, deductibles, coinsurance rates and exclusions before committing!
What asset protection is and how it works
Assets, such as your home and your car, can be protected from possible legal proceedings. One of the more popular forms of asset protection is guaranteed asset protection insurance.
It is important to understand what this form of protection can and cannot do. When you have property that you want to protect, you will need a lot more than just liability insurance; you will need property insurance to protect against damage caused by weather or natural disasters as well as liability coverage to cover potential accidents on your property.
Unfortunately, not all states allow for the type of coverage offered with guaranteed asset protection insurance, so make sure that's not going to be an issue before purchasing it.
There are certain federal requirements that must be met in order to purchase guaranteed asset protection. The company issuing the policy must also be licensed in the state where you live and have been doing business for at least one year prior to applying for any new policies.
One of the best things about this type of insurance is that it does not discriminate between tangible assets and intangible assets such as intellectual property, patents, goodwill or royalty streams.
That means if someone were to sue you and win, they would not receive any compensation beyond the value of your tangible assets.
You may also want to consider increasing both liability limits and personal injury limits on your auto policy because when somebody gets hurt in an accident on your property it could affect your homeowner's or renter's insurance rates too!
Even if you don't own any valuable property, there are many other ways that you can use insurance to protect yourself. One way is to increase your life insurance. If something were to happen and leave your family without a primary breadwinner, then life insurance can give them some financial stability while they figure out how to move forward.
Another way people often think about protecting themselves financially is through disability income insurance which replaces lost income due to long-term illness or injury—something no one wants but everyone should prepare for.
Why paying yourself first is important?
Paying yourself first is one of the most important things you can do when it comes to making sure your finances are in order. It might seem a little counterintuitive, but it helps if you're taking care of yourself before trying to cover any other expenses that life throws at you.
It's a lot easier to ask for forgiveness than permission after all, so why not give yourself the opportunity to keep what money you have?
Start by setting up an automatic transfer into a savings account on payday. Choose how much or little money goes into your savings account and don't take any funds out until there's enough cash in your account to fund your financial goals. Doing this will make it a lot easier to save more in the long run and help you live comfortably now without going into debt.
Use this rule as your own personal guideline: "always spend less than you earn!" Easier said than done, right? That's where developing healthy habits around spending come in handy.
If you want something badly enough, then wait until it goes on sale or find a way to buy it used. Making these choices will help you control impulse spending while still being able to enjoy the things that bring happiness and comfort into your life!
Even if saving doesn't feel like something fun right now - like playing catch with friends or seeing your favorite band play live - just remember that saving today means security tomorrow.
Conclusion
For every one of these suggestions, the first step is to know your limits. This can be difficult because you need to understand what your options are and decide what makes sense for you and your life. But whatever you do, be sure to save more than you spend. Spend less than what you earn.
Make a budget and stick to it--try something like Mint's free budgeting app, which makes it super easy. Understand that enough is not the same thing as success, but if we strive for enough now and invest in our future later, eventually we'll reach our goals while still feeling content with what we have now--this is called financial peace of mind!
In conclusion, here are the 11 most important personal finance planning tips for beginners:
1. Create an emergency fund.
2. Get out of debt or don't get into debt in the first place by learning about how credit cards work before you apply for one.
3. Save at least 10% of your income or take advantage of matching contributions from employers or government programs like Social Security benefits, if available to avoid money anxiety when it comes time to retire or leave on maternity leave without losing purchasing power along the way; and so that when emergencies happen they won't devastate your family's finances . It will also give you some protection against inflation.
4. Know where your paycheck goes each month and make necessary adjustments to lower your expenses such as downgrading cable packages, cooking at home instead of eating out or joining group deals online to see discounts on things like car rentals, hotels and flights--it only takes minutes!
5. Become aware of the difference between wants vs needs so that there is no temptation to overspend on unnecessary items such as new clothes, cars, vacations or electronics when this causes significant harm to our savings accounts; also consider using an envelope system to plan spending more effectively - keeping cash nearby for groceries, clothes shopping etc.; always remembering that needs should come first followed by wants; make it a priority for kids too!
6. Pay off any remaining student loans (particularly if the interest rate is high); or refinance them to reduce monthly payments and pay them off faster.
7. Have an Emergency Fund equal to six months of living expenses at all times since unexpected events like divorce, illness, job loss, death of a spouse can occur anytime--and knowing you have that money set aside means you're ready when they do!
8. Learn about the tax implications of different types of investments and retirement plans, including Roth IRA's, 401Ks, SEP IRAs, and Roth 401Ks.
9. Start saving for retirement early (at least 15 years before you expect to retire), putting at least 10% of your income towards retirement. This ensures that you'll have sufficient funds when it is time to retire or leave on maternity leave without losing purchasing power and provides some protection against inflation--meaning your money will go farther!
10. Don't underestimate the power of time and compound interest by making it a priority to start investing as soon as possible, and even if it's just a small amount--the sooner you start, the more time your money has to grow.
11. If you want to live in a big house or drive expensive cars when you retire, never forget that you'll have to work hard for decades and be willing to forgo current pleasures for retirement security!
