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In the mid-1980s I was a young wife with a husband and a house and no real idea about how to handle finances other than using a checkbook and having a savings account. We lived in a small farming community and commuted to work over 20 miles each way. My employer was paying for my college education and I had strict guidelines to stay within a computer-related degree. Needless to say, that degree didn’t involve any kind of personal finance classes. My opportunity to learn finally came through a local college’s extension program. I was able to sign up for a 12-week class held one night a week at a local church for less cost than a formal college class.
This extension class formed a solid foundation that I’ve built on over the years. It gave me confidence enough to handle all my bills, build and sustain a good credit rating on my own, and gave me the skills to understand investments. I’m going to have a very comfortable retirement, thanks to this program.
What is your relationship to money?
This is the first question that the extension instructor asked me and it’s the first question I’m going to ask you. What is your relationship to money?
At the time, all I could answer was that money passed through my hands so fast, I didn’t have enough time to build a friendship much less a relationship.
I went on to learn that most people’s mindsets about money center around scarcity. They live with the idea that they don’t have enough and they live in a constant state of lacking. They think that there’s never enough and will never be enough. And so, it becomes true. Some of us may have seen our parents struggle. We may have seen them fight over money. We’ve all heard the phrase “money is the root of all evil”. There’s also an old saying that money can’t buy happiness! True, it can’t … if you’re unhappy with your present income you’ll be unhappy when you have more.
The scarcity mindset needs to change to one of abundance. There are unlimited resources in the world. The universe provides the abundance we seek but we just can’t sit back and ask for it … there is some work involved. Start moving your mindset from “there isn’t enough” to “there is enough”. Open yourself to receiving. You deserve financial comfort. You deserve to be comfortable. Money can do generous and wonderful things in the world.
Pay Yourself First
It doesn’t matter how big or little your salary is, put aside something for yourself first. Payroll deduct it if you have to so you won’t be tempted to spend it. Even a small amount builds up over time. Just $5 or $10 a week will get you on your way. Evaluate where your money goes using a very simple budget. Track each month’s income and outgo and see what you can squeeze a few dollars out.
If you’re still having difficulty saving try a work at home job like filling out surveys, doing crowd tasking jobs, or find something you can sell to make extra cash.
As a rule of thumb, you should have three to six months’ salary in savings for emergencies. This one’s difficult, I know, I think I’ve only had that much stashed in savings (that I could freely touch) a few times in my life.
Invest in Your Company’s 401K program
Start a 401K savings account either through your company if they offer one or if they don’t, through your bank. Most banks have 401K programs that will take before tax deductions from your paycheck. 401K’s are a big help to fund your future financial security.
I’m going to let you in on a little secret that it took me almost 20 working years to figure out. The amount taken from your check pre-tax to fund a 401K makes your taxable income smaller. This, in turn, means that the government will take out fewer taxes. In essence, your take-home pay will stay pretty much the same. That break-even percentage varies on your pay and tax rates. Also, most employers match up to a certain percentage of what you invest. If they match up to 3% and you have 3% taken out of your paycheck pre-tax, your money has just doubled without much effort. Hey! Free Money!
Keep Your Hands Off Your Savings
If you possibly can. I can’t stress this enough. I know emergencies come up, there are vacations that are impossible to turn down, and sometimes you just have to have a little fun. But the last time I looked a pair of Jimmy Choo shoes is not an emergency.
Once you have a 401K started and have funds going into it, avoid the temptation to take out a loan against your 401K! If you get laid off, and in today’s employment climate that’s entirely possible, your 401K loan to buy that great car may come due in a lump sum. It’s just not worth the risk.
According to a 2017 retirement savings survey, less than 33% of adults in the U.S. have anything saved for retirement. Over half don’t have more than $10,000 in savings.
No matter what age you are, it’s never too late to start setting aside money to secure a long-term financial future. GoBankingRates has a great article on long-term savings options. You can find it here: 5 Proven Ways to Save For Retirement
Limit the Amount of Credit Cards You Own
Yes, one of the best ways to start or build up a credit rating is having credit cards. Your credit ratings show how diligent and trustworthy you are in paying your bills and your credit debt. Having a gas card and a major credit card will build up your rating. The higher your credit rating, the easier it is to qualify and get better interest rates on loans.
If you’re going to own a credit card, make sure it’s one that gives you points for purchases. Having a card that gives you points that you can turn in to airline miles, cash back or maybe towards your mortgage is another way of getting “free” money. I use the air quotes around free because obviously, you have to make purchases on your card to get that benefit so it’s not really free. Markdowns and sales on merchandise work the same way. You’re not really saving money if you spend it on things just because they’re on sale. Unless of course it’s an item you needed to buy anyway.
The other rule of thumb is to shop around when you’re looking for a card and find the lowest interest rate you can. Another trick some people use is to take advantage of a one-time rollover from a current card for a lower interest rate on a new card. Just make sure you close out the old card after the transfer is complete.
If you pay your card off each month and like the card and its benefits then give the issuing company a call and negotiate a lower interest rate. Credit card issuers will often bring down your interest rate if ask politely or they think you’re shopping around for a new card.
Keep your cards paid off in full each month and use your card wisely. If you can’t afford to pay the card off each month then don’t fall into the minimum payment trap, always pay at least double of what that number is. Minimum monthly payments benefit the card issuer, not you. If you pay the smallest amount, your balance won’t go down over time and you’ll be paying for everything purchased on that card 10 times over in the interest that get racked up. Consider using the card for convenience and only buy things that you have money in the bank to cover.
A credit card is a useful tool. Like all tools, an injury could occur if you don’t learn to use it correctly.
Going Beyond the Basics
Community colleges are a great resource to find basic financial classes. Most major colleges also run adult education classes that are very useful but a little more expensive than the community colleges.
Be wary of financial classes run by financial institutions or insurance companies. I’ve been in a few of those and at the end of the useful information, there’s usually a sales pitch.
Also be wary of where and what information you find on the internet. Only deal with reputable sources and if it sounds too good to be true, it is.
I have read a lot of books on personal finance over the years. I’ve found three books that really stuck with me and have become my favorites each for different reasons.
After taking the extension class I picked up Making the Most of Your Money by Jane Bryan Quinn. It’s the book that started me on my road to financial health. I really like Jane’s writing style and she makes complex subjects fairly easy to understand. This is my go-to reference when I need a refresher. The book is tattered and dog-eared and much-loved.
She has an updated version (which is on my wishlist) called Making the Most of Your Money Now . She did the update to reflect the current economy.
My next favorite is not so much a how-to financial book but rather one that has valuable information about how our attitudes about money affect how we save and spend. Rich Dad, Poor Dad by T.Kiyosaki was recommended to me by a co-worker who was getting a financial degree and read it for one of his classes. I love this book because it made me really stop and think about how my attitudes on money were affecting the way I was saving and investing.
The third book came recommended to me by my financial adviser. Smart Women Finish Rich by David Bach. At the time, she was hosting seminars of the same name. Okay, I know I warned you about financial classes run by financial institutions in the section above. The information in the book is so helpful and well written that I’m including it here despite the sales pitch at the end. It has excellent forms in the appendix to use for financial goals and to get an idea of where your money goes and to help you in determining where you really want it to go. The book also addresses how some of our attitudes about money that hold us back from success.
Most of all, I want to stress that saving money takes time and patience. Before you know it, you’ll have a nice nest egg saved up and the peace of mind that goes with it.
My mother’s attitudes about money helped make my sisters and I strong independent women. She taught us to relyonn ourselves, especially financially.
I’m by no means an expert on money matters but I’ve learned what works well for me. There have been a few potholes along the way but I’ve learned a lot while I was hoisting myself out of them.
I hope this post helps you to avoid the potholes that I hit. Please share your stories in the comments.
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