I was taught as early as grade school that witholding education was a way that people were able to gain power over other people. So even then, I thought if I got smarter on topics to which I was ignorant to - then people would no longer have POWER over me. So I read, I went to class, and learned all manners of things except FINANCE. So now, I'm taking power back over my money..and thought I'd share my findings with like minded people.
As G can attest to, I seemingly break down emotionally via telephone once or twice a month over where my money is going and how I can be working all the time in perpetual motion and not have a house or a yacht to point to as mine. In particular my grievance is that I seemingly cannot hold or maintain any sort of savings account. The thing is; say I have $500 in the SAVINGS ACCOUNT. What usually will happen is: a rock will fly through my windshield (true story); I will get a hospital bill from hell (true story); or I will have to pay some cray cray deposit even though I've lived here more years than I care to think (true story).
The things I took away from class today (in Leslie-speak):
Your money should start with the 70-20-10 principle.
- 70% of money toward living expenses.
- 20% of money toward indeptness.
- 10% of money towards saving/personal/miscellaneous.
A savings account is only a benefit if you have paid or are paying your life expeditures in a timely manner. If you put your mortgage payment on your credit card..that is not a good idea.
Paying $100 towards your credit* card payment if you're going to spend $100 is also not a good idea. Pay more than the minimum..but unless you are closing the card account - put that money towards the 70% (living) and not the 20% (indeptness) . More on credit cards after my Understanding Credit class.
Budget for everything.
Your haircut, your gas, your groceries, your fun, your 7-11 trips - that is under LIVING EXPENSES not the 10%.
Savings vs. Investments
If you're going to save money you want it to work for you.
Say you put $100 under your pillow in 2011. In 2012 it's still $100. No movement, the money is not working for you (and inflation has most likely occurred to outside expenses).
How much interest accrues on a regular savings account over a year? (Not much)
Ask your bank what types of money market / investment options they offer for long term savings (could mean 2, 5, 10 years..this is different than retirement). Base your contributions on the money you have left over from your spending plan. Sure there maybe an early withdrawal fee, but if you've made a profit - the money lost will come from the money you quite possibly doubled (by putting the money to work).
Example - setting a goal of 10k by Jan 2014.
Putting in: $555 a month in savings will get you 10k in 18 months.
But what if you put $250 into a money market account for 18 months (same amount of time). There is the potential to earn 20k, lose 6 to taxes/penalties and make 14k?
and that's how money works for you.
This blog was supposed to be about Mother's day (but I think she's proud of my efforts to stay financial sound.) Also Judy doesn't even read my blog.
Next up: How not to damage a tiny ecosystem. Why Leslie shouldn't probably shouldn't own an aquarium.