(Continued from Part III.)
Now let’s look at your own personal finances in more detail.
SAVINGS, INVESTING, AND PAYING OFF DEBT
Savings should always come first before any spending or investing, except if you are carrying a fair amount of consumer debt or student loans. If you are, make it a point to pay if off first, as we have discussed above.
But do also make sure that there is no penalty actually involved in paying it off quickly. Seriously, they WILL do that. WHY? Because they make more money out of you paying interest, than in paying back the principal (the money owed.
Once you are in the clear on debt, then it makes sense to save. If an APR is at 15%-29%, then the 4-5% savings you would get from the average online savings account would be meaningless.
Look at your savings options, and choose something with relatively easy access so you don’t run the risk of penalties if you have to withdraw it in an emergency (such as if you had it in a 1 year CD).
If you are thinking of investing it to get a higher return on your money, decide what you can afford to invest and thus risk.
Even a small amount saved will help you reach your short term and long term financial goals.
BUDGETS: A LIVING DOCUMENT
Above all, keep in mind that your budget is a living entity, as the cost of living goes up or down, and your situation changes. If you are living on your own, make sure you hold yourself accountable, by realizing that short-term sacrifices can lead to long term gains.
If you are in partnership, both of you will need to be happy with the final budget, and feel like it’s something you can stick to. Remember, you’re working together towards a brighter and better future, not playing the blame game.
Once you have your budget, you can look at your overall financial health, and work on the areas that need improvement. At least with your budget, you will have a workable map toward your destination, so while you may not always steer the straightest course, at least if you follow your budget, you won’t sail onto the rocks.
