Helpful financial tips

[Little Fish]

All:

The first step in the financial planning process begins with an assessment of your current financial condition. For a term of three months, one should track all expenses and categorize them as either Fixed, or Variable expenses. Fixed expenses are those that do not vary from month to month, examples include mortgage payments, car notes, utilities, etc. Variable expenses are those that you can vary, examples include food, clothing and entertainment. This allows you to determine on any given month, not only what you are spending, but whether or not you have excess cash given current earnings.

Once you've tracked expenses, you should develop an emergency fund consisting of 3-6 months of Fixed plus Variable expenses. Generally, the correct amount of savings depends on risk. If married and both spouses work, you typically don't need 6 months of expenses in the Bank; rather, 3 months should suffice. Conversely, should you be a single parent, there is much more risk; therefore, 6 months is necessary.

IMO, the Emergency Fund is most often overlooked as most folks want to jump in and start investing. Yes, I know an Emergency Fund isn't sexy, but it is crucial. In fact, it is inappropriate to begin investing prior to building your cash reserve.

Little Fish

 

[seaside2]

LF is right on.

Also, if you are in a profession where finding a new job takes a while, 6 months may not be enough, especially in today's economy.:shock:

 

[scooterbug44]

Does the "emergency fund" have to be a dedicated cash reserve that would last you 3-6 months or do you just need to always have that amount liquid?

 

[Little Fish]

Scooterbug:

To answer your question, you should always maintain a dedicated cash reserve of 3-6 months of Fixed/Variable expenses. The reserve must be in highly liquid short term securities, such as money market funds. It is also possible to create a short term CD ladder for a portion of the funds, but that gets a little technical.

If ever you dip into the reserve, your first priority should be to bring your balance back to target.

Little Fish

 

[seaside2]

And this is why a budget is so critical so you know how many $ you need to have to cover at least the fixed expenses and most of the variable.

When you are out of work, some of the variiable can be eliminated, but yopu also have to think ahead for things like insurance, job hunting expenses, etc.

For example COBRA requires (under most circumstances) that if your former employer had health insurance that they have to offer it to you for a period of time, but not at the rate you were paying earlier. In most cases, the employer pays a large portion of the insurance, typically 80%. Now all of a sudden, your insurance goes from 20% of the premium to 100%, a 5 times increase. $200/month before, $1000 per month after.

 

[30A Skunkape]

Scooter-this is where I set up our emergency fund. I got turned on to it by Clark Howard. 4.75% savings account, all online, FDIC protected, hooked-up to your checking account so you can transfer at will, no minimums or fees. Makes it easy to have a little cash on hand if needed!
https://www.emigrantdirect.com/EmigrantDirectWeb/index.jsp

 

[scooterbug44]

My parents and grandparents were very good about teaching us to plan for the future/outright planning for us.

Grandpa & grandma got us life insurance when we were little and our Xmas gift every year is that the premium is paid. Very cool present once you're old enough to realize the financial implications of it - not so much when you're 8 and they're telling you one day you can borrow against it for your first home or cash it in in an emergency etc!

 

[Beachbummette]

Best financial advice I ever got was from my Grandfather who raised me (this will come as a shocker for those that know me, believe or not...I try to go by these) he never owed a dime in his life and raised 4 children, 2 grandchildren and ran a succesful business.


1) If you don't go shopping you won't spend any money.

2) If you can't pay cash for it you can't afford it.

3) Don't worry about what anyone else has or does not have, just work hard and take care of your own.

4) Most things in life you dont' really "need"

FFF goes by the same rules, I guess that is why we get along....most of the time.

 

[SHELLY]

Since Gore invented the internet, there is no reason for folks to claim finanical ignorance anymore.

ALWAYS be a skeptic in matters dealing with your money. Research, research, research....before--(repeat)--BEFORE you jump into any financial dealings and sign your name on the dotted line.

Understand how the terms on your credit card work.
Understand how your bank applies interest to your savings.
Understand how your mortgage works.
Understand how your loan rates are computed.
Understand how your IRAs/401k and other retirement plans work.
Understand how mutual funds/stocks/bonds work.
Understand how your mutual fund company/broker charges expenses.
Understand how you can be scammed by "financial advisors"
Be wary and question the latest "investment du jour."
Don't take financial risks that are outside your comfort zone.
Upon reaching a financial comfort zone, spend on experiences...not "things."

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[fisher]

In addition to all the advice above, most of which is good--

If you are a person of means, don't limit yourself to giving 10 percent to charity.

Ditch the debit cards and use a credit card instead, BUT pay off the credit card each month to avoid all interest charges. Credit cards provide much more legal protection than debit cards.