Thursday, December 29, 2016

Part 1: Personal Finance

If your goal is simply financial security or financial abundance in retirement the most important thing is not how you invest your savings. 

The main idea is to spend less than you make while you are working.  Once you make that a habit then the rest is easy. You do not need to know much about investments to achieve financial security. 

If you spend less than you make you allocate your savings according to the following priorities.

  1. Pay down all credit card, installment credit.  Home mortgages are okay.  Car payments should be avoided but they are also okay.  Lease payments are no good. 
  2. Put aside some money for a rainy day fund.  If you are starting out it can be as little as $1000.  The rainy day fund should be liquid - meaning bank account, money market or a bank CD.
  3. If you have a 401K save at least up to your companies match.  In fact if your company has a match this might move up to #2 in priority.
  4. If you've achieved 1 through 3 then you can either add to your rainy day fund.  The amount you add depends on your job security.  If you're confident in your job situation enough money to cover 3 months of unemployment should be sufficient.
  5. If you get this far you now should add to your 401K to the max allowed even if there is no match form your company.
  6. If you still have surplus then invest in a non-retirement account. Open up a brokerage account at Vanguard or a discount broker.  I'll cover how to invest in the next post.
That's about it.  As long as you spend less than you make you'll be adding to your savings each month.  

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