Tuesday, May 1, 2007

Crash Course In Personal Finance: The Basics

I recently was reading an article over at The Blueprint For Financial Prosperity that lists 10 basic personal finance concepts everyone should know. I think it is a great list. I will list the first 10 here and add a couple of my own. Of course I encourage you to check out the whole list here.

  1. Spend less than you earn.
  2. Thinking about money sucks, but it can be easy.
  3. You don't have to follow the crowd.
  4. Retirement savings order: 401k with match, Roth, 401k, everything else.
  5. Avoid debt unless it is for a house, car, or education.
  6. Showing off either breeds either jealousy or annoyance.
  7. Scrap the latte factor.
  8. If it's too good to be true, it is.
  9. Life is about enjoyment, not money.
  10. Always act morally, ethically, truthfully, and legally.
I generally like everything on the list (although as many comments said on the blog, I too am not into taking on much debt for a car purchase). Here is what I would add aside from modifying #5 slightly.
  • Make a will and health care power of attorney:
    • It doesn't matter how much you dislike attorneys, these documents save your family lots of hassle and potentially money in the long run. Your state may even have fill in the blank forms you can do yourself.
  • Save young & retire early
    • Compounding is a wonderful thing

  • Pay debts in this order:
    • credit cards, other high interest short term debt (payday loans etc), financing company loans (i.e. cars), private student loans, mortgages & federal student loans.

  • Owning a home is not always better than renting
    • A large portion of the time it is, but if you are taking on more mortgage than you can afford or will only be in the home a short time the transaction costs will eat up your equity.

  • Keep your paperwork in order
    • If you have some sort of filing system or at least can keep tabs on your bills, statements, and other important paper you will be in much better shape.
Link
Blueprint For Financial Prosperity - Basic Personal Finance Concepts