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Saturday, June 4, 2011

Top 10 money advice for saving


Top 10 money advice for saving

1. Find out how much you are worth. Go ahead, put a price tag on yourself and find out just how much you are worth today. Add up all your assets (cash, bank deposits, liquid investments, house, car, jewelry, and others), deduct all your liabilities (bills due, loan amount, credit card debt, long-term loan), and you will get your net worth.

A positive net worth shows you are on the right track, while a negative one will serve as a wake-up call for more financial discipline. This 'snapshot' of your financial standing will also clue you in should you need to move your investment around or stop racking up new debt.

2. Save smarter, not just harder. It's important to save for the future-when unexpected emergencies arise, there will be a fund to dip into. It's also good to save so you can reach your financial goals, whether those include buying your own home, giving your children a good education up to college, or preparing for retirement.

But it's not enough to just save money and deposit it in a savings account, which will earn you a small amount of interest. Other investments may possibly give you a higher rate of return. Putting all your cash in a savings account will also allow inflation to erode the purchasing power of your cash. Go for investments that potentially offer rates of return higher than the prevailing inflation rate. 

3. Plan for your future needs. Whether it's for your dream wedding, children's college tuition, your car's annual comprehensive motor insurance, your summer vacation next year, or your Christmas gift budget for this year, plan ahead. Find out how much this would cost, then aim to save for that amount monthly beginning today. 

4. Make a budget. It can be discouraging to find out toward the end of the month that you are running low on cash-again. To remove this problem forever, discipline yourself into making a budget. 

Write down your projected income, deduct your must-pay bills (including savings), then apportion the rest into expenses you can control (such as food, groceries, going out, etc.). These amounts will be your spending limit. Try not to go over your spending limit or else you will find yourself in debt.

5. Take only as much debt as you can afford to pay. This goes for housing loan, auto loan, credit card debt and the like. That means, before you buy something on credit, ask yourself first if it is something you need and can afford to pay in full the next month, or in reasonable installments over the succeeding months. As for other loans, review the terms carefully and make sure your budget can accommodate the regular amortizations.

6. Teach your children to handle money well. That starts by not buying them right away anything their hearts desire, whether that's the hottest new toy, game console or gadget. There is nothing wrong with giving children rewards, but if you keep giving them material gifts, they may not learn the difference between wants and needs. Prioritize needs, not wants. 

Give your children an allowance which will help them learn firsthand what it is to spend, save or give. Teach kids how to budget. Open a bank account in their name and let them see how their money grows. Your children need to know the importance of eight things: budgeting, saving, investing, record-keeping, being content, being good stewards, giving, and having a reward.

7. Build an emergency fund. As the name implies, such a fund is to be used only for emergencies, such as when you suddenly lose your job, or a family member falls ill, or a calamity strikes. Set a time frame on when to complete the fund. Start small and increase amounts as you are able. And consider it a "bill" you have to pay every month. Invest this fund in an account which will help it grow.

8. Be adequately insured. If you are the head of the family or have people depending on you, it is a must that you take out life insurance, as well as health insurance. You'll never know what may happen in the future. 

A death, illness, or disability will not only be an emotional blow, but a financial burden on loved ones. Take out as much coverage that will help your family tide over the crucial months after the event until they can get back on their feet.

9. Diversify your investments. The old adage, "Don't put all your eggs in one basket" holds true when it comes to investing. Spread out your investment over different asset classes so that if one asset class is performing poorly at the moment, other assets' returns may make up for it. Go for investments that will suit your appetite for risk, your time horizon for investing, and of course your available capital.

10. Live within your means. You don't need to keep up with the neighbors whenever they buy something new. Based on your income, spend only within your limits (as set forth in your budget). Cut costs whenever possible: 

Take public transport instead of the car every day, make personalized gifts instead of giving out store-bought gifts, host simple instead of lavish parties, and hunt for bargains instead of buying the first thing that you see. Little steps like these amount to a good amount of pesos saved at the end of the year, which you can add to your retirement fund.

This may all seem to be too much in one go, but if you truly wish to turn your situation around, you need to make a commitment for you and your families' financial future. We wish you financial independence and a life well lived. Cheers!
Source:
www.inquirer.net



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