Friday, August 24, 2007

Financial Boot Camp

I am well aware that when it comes to personal finance, I am a little obsessive-compulsive. Why is this the case? For starters, for the entire five years of my marriage, my husband refused to let me handle our money and I watched our situation bounce around from bad to mediocre to bad again. I don't ever want to be in that situation again. It is empowering to understand and control your finances. When I was single (meaning before my marriage) I was in situations where I lived from paycheck-to-paycheck, where I had no savings, where I invested foolishly and aggresively and lost my shirt, and also where I was so flush with cash from lucky stock market investing I thought I could retire early, where I had saved so well I could quit my high-paying powerjob and start my own risky business. Etc. I've been all over the map. What have I learned? A lot. But primarily that having money is better than not having money.

Here are some rules I like to live by:

1) It is important to invest. This goes for retirement money and non-retirement money. You simply want to have your money working for you. Don't know squat about investing? That's fine; sit down with someone who does and invest in a low-risk mutual fund, or better yet, an index fund.

2) Never invest more than you can afford to lose. If you stick to reliable funds, you probably won't lose in the long run. But there are no guarantees. At the same time, it's very important to invest.

3) Make sure your savings account is paying you 5% plus. There are so many banks doing this now that I can't list them all. Don't know of any? Write to me and I'll hook you up.

4) You must have health insurance. Even if you are a healthy, young strapping thing, you gotta have this. If you can't afford it, buy into a cheapola HMO. It is incredibly irresponsible not to.

5) Save for a house but don't buy one prematurely. Real estate is always a great investment, except when it isn't. It is nice and wonderful to own the place you live, but don't rush into buying real estate. Make sure you have that 20% down. Make sure you have crunched mortgage calculators and have enough left in savings to cover mortgage payments for a year if you lose your job. Make sure you aren't buying a house for all the wrong reasons. Throwing money away on rent is painful, but foreclosure is more painful.

6) Save, save, save. Pick a number and sock it away every single month and don't touch it unless you really have to. I don't like saving by percentages because I think it's more satisfying to stick to a number. Pick a realistic number so you will be able to do it.

7) If you have a mortgage, pay it on time. Without fail.

8) Use credit cards for points and rewards, but pay down the entire balance every month. If you can't, you are spending too much and you've got to rein yourself in.

9) You must, absolutely MUST, put away money for retirement every year. This comes before buying a house or an Ipod. Even if you don't max out your IRA or 401(K), (which you ideally should), please throw a little money in every year, invest it and watch it grow. You don't want to be working when you are 90.

10) Give charity on a regular basis. For those of you out there that are frum, you know about the imperative to give 10% of your net income. What I'm saying is, even if you can't give anywhere near this, give something, every month. If you have BillPay on your online checking account (and if you don't you should), set it up to go out automatically so you won't need to think too much. Just about everyone I know can buy two less restaurant meals a month and give $54 to charity. So do it. At the very least, it creates connection.

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