Personal finance is about more than just spending less than you earn and staying out of debt. You need a balance of insurance to protect your assets, investments to prepare for retirement, and a plan to take care of your loved ones when you pass away. What follows are 10 personal finance essentials that everyone needs as part of his financial plan.
1. Make a will or estate plan
What happens when you die? Who will take care of your children, pets, bills, property, etc.? Unless you have an estate plan, there will be a lot of guesswork and frustration on the part of your survivors. You should decide how your assets are distributed after you die, not the state. Creating a will makes life easier for your survivors. You can create an estate plan with the assistance of an attorney, or with an online legal document preparation service such as Legal Zoom.
2. Obtain sufficient insurance
Insurance is there to protect you in case you can’t afford to pay for certain expenses as they arise. Generally you get insurance for items that are expensive. You will need many types of insurance. Here are a few of the essentials:
- Medical Insurance.
- Life Insurance – Term, Whole, Universal, or Variable Life Insurance.
- Disability Insurance.
- Long Term Care insurance.
- Auto Insurance.
- Homeowners/Renters Insurance.
- Umbrella Insurance.
Make sure you buy enough life insurance and other kinds of insurance.
3. Set up a high yield savings account
One of the most important financial accounts you can have is a high yield savings account. With it you can manage your money while it grows through the power of compound interest. I link my high yield savings account to my checking account and have my paycheck direct deposited for easy access. I recommend ING Direct or FNBO Direct, which both offer free high interest savings accounts with easy access and high reliability.
4. Track your money
Everyone should have a very good idea of where his money is going. You can subscribe to a rigid zero based budget, or you can be a little more fluid with your money. But you still need to know where it goes. There are many great tools available to help you out – including free tools from Mint.com, and tools you pay for, including You Need A Budget and the full desktop version of Quicken.
5. Build an emergency fund
Life comes at you fast. Instead of living paycheck to paycheck, put some money away every month for unexpected expenses. When you create an emergency fund you are giving yourself insurance against emergencies which could cause you to go into debt.
6. Get out of debt
The powers of compound interest are amazing. When you understand how truly powerful compound interest can be, you will realize just how important it is to have compound interest working for you instead of against you. Debt is a killer. Pay it off and start investing your money so you can rest easy in retirement.
7. Improve your credit score
Your credit score is very valuable. Your credit score affects your ability to get a loan, the interest rate you receive, your ability to get a cell phone contract, and possibly even your ability to get a job or security clearance. Here are tips on how to understand your credit score and how to improve your credit score.
8. Start investing for retirement
I have no desire to work because I have to when I am 70. If I work when I am 70, I want to do it because it energizes me, not because I need the money to pay rent or put food on the table. Investing money in my 401k plan, Roth IRA, and solo 401k plan is part of my long term financial goal to avoid having to work into old age. Remember, the more you invest now, the easier it will be later.
9. Increase your income
Your ability to create income is your greatest asset. It’s not your house, or car, or bank account. Your greatest asset is you and your ability to generate more income and you need to nurture it and grow it. In the long run, increasing your income is better than saving money. There is only so much that you can cut back on before you can’t cut any more. One of my long term plans is growing my alternative income streams.
10. Negotiate to save money
There is an old saying, “only fools pay sticker price.” While that may not always be the case (try negotiating at Wal-Mart!), there is some truth to that statement. You wouldn’t go into a car dealership and offer to pay full sticker price on a car, especially in this economy. Instead, you would negotiate a better deal. Other examples where it may be worthwhile to negotiate include your cable bill or your property taxes.
Master these personal finance essentials. If you have these essential personal finance topics covered then you can rest easy at night knowing that your financial house is in order and you are well on your way to financial success.
This article is part of a group writing project, the 12 Days of Christmas – Personal Finance Style. Links to the previous Days of Christmas are located at the end of this article; this is the Tenth Day of Christmas.
The 12 Days of Christmas – Personal Finance Style:
- Day 1 -The First Rule Of Personal Finance @ I’ve Paid For This Twice Already…
- Day 2 – Two Financial Goals – Less Debt, More Income @ Cash Money Life
- Day 3 – 3 New Year’s Worksheets @ Mrs. Micah
- Day 4 – 4 ways to be better prepared for Christmas next year @ Gather Little by Little
- Day 5 – 5 Golden Rules To Follow During The Holiday Season @ My Two Dollars
- Day 6 – 6 Ways To Give @ Moolanomy
- Day 7 – 7 Savings Strategies @ Being Frugal
- Day 8 – Eight Simple Snowflakes @ I’ve Paid For This Twice Already…
- Day 9 – 9 Year-End Money Moves @ Moolanomy
- Day 10 – 10 Personal Finance Essentials @ Cash Money Life
- Day 11 – the 11th day of Christmas: 11 ways to decorate more frugally @ Plonkee
- Day 12 – 12 Steps to a Prosperous New Year @ Being Frugal