Managing Your Money All-in-One For Dummies, 2nd Edition
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Managing your money is crucial at all stages of your adult life — whether you’re interviewing for your first job, in the thick of your prime earning years, or enjoying your retirement. Some crucial aspects of managing your finances include taking stock of your finances, using a budget, building your savings, and investing your money.

Assessing your finances and managing money with a budget

You need a clear idea of the current state of your finances to figure out the best way to deal with your debts. Start with the following tips:

  • Compare your monthly spending to your monthly income. By doing this comparison, you may quickly realize that you’re using credit to finance a lifestyle you can’t afford. If that’s the case, you must reduce your spending to meet your financial obligations, and you may need to do a lot more than that, depending on the seriousness of your financial situation.
  • Order copies of your credit histories from the three national credit-reporting agencies: Equifax, Experian, and TransUnion. Your credit history is a warts-and-all portrait of how you manage your money — to whom you owe it, how much you owe, whether you pay your debts on time, whether you are over your credit limits, and so on.
  • Find out your FICO score. Your FICO score is derived from your credit history information. These days, many creditors make decisions about you based on this score instead of on the actual information in your credit history.

After you assess the seriousness of your financial situation, you need to prepare a plan for handling your debt, including keeping up with your creditor payments — or at least keeping up with payments to your most important creditors.

One of the first things you should do is prepare a household budget. Whether your annual household income is $20,000 or $100,000 (or more), living on a budget is probably the single most important thing you can do to get out of debt and to avoid debt problems down the road. A budget is nothing more than a written plan for how you intend to spend your money each month. A budget helps you

Make sure that your limited dollars go toward paying your most important debts and expenses first.

  • Avoid spending more than you make.
  • Pay off your debts as quickly as you can.
  • Build up your savings.
  • Achieve your financial goals.

If you don’t owe a ton of money to your creditors, living on a budget may be all it takes for you to whittle down your debts and hold on to your assets.

Adding money to your nest egg

Becoming a saver is a big part of managing your money, and you have lots of tools at your disposal. Here are a few proven ways to build your nest egg:

  • Pay off your credit cards as much as possible. You’re paying them way more than your investments will pay you.
  • Save in a tax-deferred retirement account as soon as you can in order to get more bang for your investment buck.
  • Start by saving just 1 percent of your pay if that’s all you can afford.
  • Save for retirement even if you think it’s too late. It’s never too late.
  • Save at least the amount your employer matches; otherwise, you’re throwing money away.
  • Aim to put away 10 percent of your income for retirement each year; increase your savings rate each time you get a raise.
  • Aim to build a nest egg that’s at least 10 times your annual pay when you retire.
  • Take any company stock your employer gives you, but don’t invest your own money in it.
  • Roll your retirement money directly into a new tax-deferred account when you change jobs. Don’t cash it out.
  • Don’t take a hardship withdrawal or loan unless absolutely necessary.

Investing as part of managing your money

Think you can’t become a savvy investor? Think again! Check out the following tips as you manage your money in investments:

  • Come up with a plan. Know what you’re doing and why: Don’t invest blindly, hoping that it’ll all come out well in the end.
  • Establish realistic expectations, and then pick funds that have the potential to meet your goals. Learn from others, but build the portfolio that’s right for you.
  • Keep in mind that higher risk doesn’t guarantee a higher return.
  • Avoid funds that have dramatic up-and-down swings, particularly if you’re nearing retirement.
  • Invest in a mix of asset types because no one knows which investments will be hot at any point in time.
  • Find a professional to help you choose the best investments.

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