There are so many crappy lists on the Internet, most of them designed to get advertising in front of your eyeballs. We have our own non-crappy list to share. It's our list of fundamental truths of personal finance and investing.
1. It Ain’t Rocket Science – Money guru Dave Ramsey has observed that “80% of personal finance is behavior” not education. You don’t need to be an expert on the stock market or high finance to start building for the future. All you really need is a solid plan and the commitment and discipline to stick with it over the years.
2. Start Early – Time can provide a powerful tailwind for your investments. The sooner you start saving for retirement, the more time your money has to take advantage of compound interest – a process in which the interest on your savings earns more interest. We should start saving for retirement from Day One of our first job. If you haven’t started yet, do it today! Waiting just 8-10 years to launch your savings program can really slow your growth and reduce the size of your potential retirement nest egg.
3. Set Goals – If you don’t know where you’re going, you’ll never get there. Carefully define your savings objectives, whether it’s a house or retirement. Visualize them in detail. Then, figure out how much you need to reach that dream. Use that information to craft a plan to reach your goal.
4. Budget – We too often think of a budget as a straightjacket or prison cell. But it’s actually an empowering tool that allows you to see where your money is actually going, better control your spending and stay on track towards your goals. If you don’t have a budget, you are flying blind in one of the most important aspects of your life – your finances. We guarantee you will get at least three significant surprises when you start analyzing your spending. “I spent how much at Starbucks last month?!
5. Spend Less Than You Make – Common sense, right? But it’s incredibly easy in this easy-credit, consumer-driven world to live beyond our means. Try to save at least 15% of your income.
6. Pay Yourself First – You can’t spend money you never see. Arrange to have your savings deducted from your paycheck via the 401k plan and/or direct deposit into a brokerage account.
7. Always Take Free Money – If your employer offers to match a percentage of your 401K contribution – and most do -- maximize that benefit by contributing to the match limit.
8. Don’t Go House Crazy – There is nothing worse than being ”house poor.” A too-big mortgage payment can really limit your ability to save – and spend on other things you need and want. So, when shopping for a new house is careful not to over-buy. Think very carefully about what you actually need in a home. How many square feet? How many bedrooms? How big a yard? How important is it to live in that trendy neighborhood? Stick to those parameters in your search. And remember: You don’t have to spend every dollar the bank is willing to lend you.
9. Protect Yourself – A complete personal finance plan includes provisions to protect the life and future you are building. Life insurance and estate planning are key to making sure your obligation to your loved ones is met, even after you are gone. If you don’t have life insurance start shopping for it today. (If you haven’t reviewed your policy in a while, do that. Make sure your benefit reflects any changes in your situation.) As soon as that’s done, make your will and get it filed. You can use an attorney or an online legal service like LegalZoom.com.
So, there you have it – the most useful, least misleading list in the history of the Internet.
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