September 24, 2010

Financial Advice From a Non-Financial Planner

Up front I'm telling you I am not an investment guru. I'm not pushing the next hot thing. I'm just an average guy who has managed to stay afloat by adhering to a few basic rules of financial sanity. How many are you following?

  • Don't Chase Returns That are Well Above Average. If most CDs are paying 1.5%, you can assume that one paying 10% has some problems. If a broker or friend says you can make a 20%  return on your money, turn and walk away quickly. If it is too good to be true, it usually is. Greed kills.
  • Home Equity Loans are Dangerous. Why? Because too many people use the equity in their house like a piggy bank. The problem is if this piggy bank breaks you could lose your home. My rule is simple: if the equity loan money is for a permanent repair, replacement, or upgrade and I can handle regular payments, then it is OK. But, I never use equity money for something that depreciates or disappears. That means never for a car, big screen TV, or vacation.
  • Use On Line Bill Pay. There is no reason to write a check, put on a stamp, and hope the Post Office delivers it on time. Virtually every bank allows you to pay your bills, on-line, for free. It is more secure than the mail. Often you can upload the data right into your budgeting software.
  • Get a Free Credit Report. Go to annualcreditreport.com for a free report at least once a year. Don't be confused by sites that promise a free report, but require you to purchase some other service. The one linked above is absolutely free. Look over your report for mistakes or problems. Contact the credit bureau immediately to fix anything that is wrong. The rate you pay for your credit card, auto loan and mortgage are directly affected by these reports. Know what they say.
  • Use A Budget. If you do nothing else keep track of what you spend. There is no other way to make it.Otherwise you are leaving your financial well-being to chance. For a few software programs you might want to explore, click here. Point #3 deals with budgeting.
  • Live Beneath Your Means. Spend less than you bring in. How do you know? Use a budget. Your goal is to spend 20-30% less than your income or investments generate. Why? That is the only way to build up a sufficient emergency fund and give you enough wiggle room to adjust to unexpected expenses or inflation. I wrote a post about this subject with more details. If interested, click here.
  • Whatever You Don't Buy is Money You Still Control. If the urge to splurge hits take a cold shower, take a walk around the block, take some time to think before you buy. After 24 hours if you still want the item and you won't break any of the rules above, get it. Too many people wind up in too much trouble by making impulsive decisions regarding money. Distinguish between a want and a need. Get the need, wait on the want.

Financial issues rank near the top of every list of retirees concerns. Is that your situation? Is there some particular area that worries you the most? I'm no expert, but I can certainly point you toward a few places that may help you. Leave a comment or e-mail me and we'll compare worries!

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4 comments:

  1. Live beneath your means - what solid advice! Extravagance is over rated - you can have a good life being frugal. Nothing better than a positive balance at the end of the month when you spend less than budgeted for.

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  2. Maybe it is a sign of the times but I have seen several posts on the Internet referring to "living beneath your means." We'd all be better off if we had that positive balance at the end of the month.

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  3. The next time you work with your financial planner, or your stock broker, or your investment advisor, or your attorney, or your… fill in the blank… ask for a discount off the fees

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