In school, you learn about history, you read books, and you learn about some math that you will never use, but the one that I have with a lot of school systems is that they do not teach basic information that would be very useful for kids to know. Unless you specifically go into finance in college, you will never learn about how to manage money, and even if you do go into finance, they leave out some of the more important, basic information that everyone school know and just expect you to figure it out on your own (which honestly is how most programs are run, unfortunately).
Because of this, I feel like there are many people that have no idea where to start when it comes to their finances, especially when it comes to financial debt and savings. This is why I came up with the idea to write a blog post about it, to hopefully inform some of you so that you are more knowledgeable about this very important topic. Here are a few nitty-gritty details about finances that you should probably know:
Having savings is very basic information, but a lot of people do not know the first step when it comes to creating savings that can get them out of trouble when something arises. Investopedia says that the first step to creating a savings is to create a budget. Here is what they say about the 50/30/20 Rule: “First let’s look at the ever-popular 50/30/20 rule. Instead of trying to follow a complicated, crazy-number-of-lines budget, you can think of your money as sitting in three buckets.
Costs that Don’t Change (Fixed): 50%
It would be nice if you didn’t have monthly bills, but the electricity bill cometh, just like the water, Internet, car and mortgage (or rent) bills. Assuming you’ve evaluated how these costs fit into your budget and decided they are musts, there’s not much you can do other than pay them. Fixed costs should eat up around 50% of your monthly budget.
Discretionary Money: 30%
This is the bucket where anything (within reason) goes. It’s your money to use on wants instead of needs. Interestingly, most planners include food in this bucket because there’s so much choice in how you handle this expense: You could eat at a restaurant or eat at home; you could buy generic or name brand, or you could purchase a cheap can of soup or a bunch of organic ingredients and make your own. This bucket also includes a movie, buying a new tablet or contributing to charity. You decide. The general rule is 30% of your income, but many financial gurus will argue that 30% is much too high.
Financial Goals: 20%
If you’re not aggressively saving for the future – maybe funding an IRA, a 529 plan if you have kids, and, of course, contributing to a 401(k) or other retirement plan, if possible – you’re setting yourself up for hard times ahead. This is where the final 20% of your monthly income should go.
If you don’t have an emergency fund (see below), most of this 20% should go first to creating one.”
In my opinion, you should ultimately have an emergency fund that will cover 6 months of expenses. Why? Because you never know what will happen. I know this sounds unrealistic to some, but you have to start somewhere and every little bit will count.
Student loans are not bad debt. Most Americans have student loans now and it, fortunately, does not really count against you when applying for a home loan, or another big purchase such as a home, as long as you are paying your bills on time. Student loans typically have low-interest rates and can actually help build your credit, so do not be afraid of them if you need to get one.
Car Payments + Home Payments
Ultimately, you do not want to have a car and home payment, but most people do have them (at least a home payment) and most of the time, you just have to keep working towards paying them off. If you were not able to put 20% down on your home, you probably have private mortgage insurance. Remember – you are able to refinance your home after a year (or once you have 20% equity in your home), so make sure you do that to get your PMI taken off, in order to lower your payment.
Here is the doozy that almost everyone falls into at some point in their life. Credit cards are easy to rack up and take advantage of, but once you do, you almost immediately regret it. Do not be scared of credit cards, but you do need to do your research before getting one. Look at the interest rates, perks you get, etc. For example, AMEX cards normally have high-interest rates, so you want to make sure that you are paying off your card each month, in order to avoid those rates.
Instead of getting a credit card, consider a low-interest collateral loan, such as the ones that Chapes-JPL offer. What is a collateral loan, you might be wondering? Let me explain: A collateral loan is a (typically) short-term secured loan against valuables (primarily jewelry). In layman terms, it is a loan that is secured by presenting valuable as collateral. These types of loans are best suited for people that need quick cash for 30 days or less. Where can you get a collateral loan? I have that information for you, as well! Located in Atlanta, Georgia in the heart of Buckhead, Chapes-JPL has been offering low-interest loans on gold, silver, diamond, platinum jewelry, and other valuables for over 38 years. They are known for their lowest interest rates in the industry, they take your privacy seriously by operating from a private and highly secure office, your collateral is insured and stored in bank vaults for free, and you are able to leave with the money you need in as little as fifteen minutes. Chapes-JPL issues loans on a 30-day period, but clients have the option of paying back their loan sooner without being charged a prepayment penalty. In addition, their clients also have the option to extend their credit for an additional 30-days.
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