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Millionaire Money Habits

May 14th, 2008 at 11:15 am

7 Personal Finance Planning Tips

personal finance planning

Personal finance planning can seem complicated and difficult. With so many investment products and vehicles, budgeting tools, debt pay down strategies, savings plans, and personal finance jargon, it can be tough to weed through all of the information and figure out where to start.

Here’s a quick checklist to make sure you are on the right path:

  1. Create a Budget: The first thing you need to do is asses your income, expenses and create spending limits to live within your means.
  2. Pay Down Debt: The more interest you are paying on loans and credit card bills, the harder it is and the longer it will take you to accumulate wealth.
  3. Build an Emergency Fund: An emergency fund will protect you for inevitable events that would otherwise drive you deeper in to debt. Be prepared for the unexpected and you will avoid one circumstance ruining your ability to become rich. (see Why is an Emergency Fund Important?)
  4. Invest Automatically: While investing can be complicated and daunting, it doesn’t need to be. The reality is that the simpler you keep it, the better returns you will receive. Simply invest in diversified mutual funds, index funds, or a life-cycle fund through your 401k plan and you will keep risk low while earning market returns.
  5. Stay on Task: As many of the celebrity investors, such as Warren Buffett and Ben Stein, frequently state, you want to be a long term investor in order to take advantage of the The Power of Compound Interest.
  6. Increase Your Income: As your income increases over time and you earn raises, promotions and uncover new ways to bring in additional income sources, put more money to work for you.
  7. Make Personal Finance Planning Fun: Believe it or not, personal finance can be fun. Make it a challenge to save a certain amount of money, stay within a budget, and find ways to cut your costs. Set short and long terms goals and remember to reward yourself for reaching your goals.

None of these personal finance planning tips here is particularly mind blowing information, but it can be life changing. The important thing to realize is that personal finance does not need to be difficult. Anyone can build wealth with a little discipline and consistency.

Millionaire Money Habit: All self-made millionaires started somewhere. It will take time and a little preparation, but you can reach your financial goals by creating a Millionaire Mindset. -RT

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  • zero
    11:54 am on May 14th, 2008 1

    Hi there,

    I’m doing a few of these tasks, but not all of them I had a few questions hoping you could give some advice:
    1. I have a car loan that I’m still paying off at a rate of $250 bi-weekly, it’s for about 13k left, the car is worth about 16-17, should I try to pay this debt off faster? I see it as a lease/financing option, however I can pay it off faster. It is however a personal loan from a family member with very low interest.

    2. Emergency fund, how important is this, should it be actual money just sitting there for an emergency, or should it be savings that can be diverted in case of emergency, it would seem to make better sense to get a higher return on 5-6k instead of leaving it in a low interest rate 3% etc savings account. Is using a line of credit as an emergency fund a bad idea? I’m in a field where the job market is very easy to move around in, with no dependents, i don’t forsee any big emergencies anytime soon.

    the rest i’m doing.

    thanks i enjoy your blog.

  • Ryan
    11:25 pm on May 14th, 2008 2

    Hi Zero,

    First off, congratulations on taking control of your finances. It sounds like your on the right track.

    I’m not qualified to give financial advice, but I can tell you my opinion of what I would do if I were in that situation.

    First, it kind of depends what the rest of your finances look like. However, I normally am a fan of becoming debt free, but because of the low interest rate, you could be better off taking advantage of the time value with investing so you can capitalize on compound interest. But than again, $250 sounds like a lot of money for a car payment.

    The way I see it is you want your emergency fund should be in a liquid, fixed-income account. Anywhere else and your money is either:
    a) in a more risky vehicle, which means your $5k could be worth $3k when you are forced to cash it in when you desperately need it.
    b) you never know when an emergency is going to happen and don’t want to have any difficulty accessing your money when you need it.

    You can use a line of credit if you have the discipline to pay it off, but what if:
    a) you need the cash because you are laid off from work and can’t get a job for 8 months
    b) you have a $10k medical bill and need to use your $5k + an your line of credit

    I’m totally satisfied with having cash sitting in the bank because it is insurance, and that has a lot of value. It’s also money that allows me to take advantage of big dips in the stock market or other investment opportunities that come my way.

    Hope that helps a bit.



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