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Personal finance is the science of handling money. It’s about earning, saving, investing and spending. And, of course, it's also an art. Expertise in these tasks can entail a high level of sophistication in the vehicles you choose and the timing you employ. But basic “best practices” can be distilled into a list of simple rules. Those best practices are presented here in the form of Ten Commandments of Personal Finance, each with a subset of tactics to consider when creating your own system for handling your finances.
I. Thou Shalt Plan and Then ActThe first commandment actually has two parts – planning and acting. The planning part involves setting financial goals and then creating a financial roadmap (budget) that will let you reach those goals over time.
The acting part involves nothing more complicated than following that budget. If you're part of a couple, the planning and acting parts should involve you and your spouse or partner.
Use technology to your advantage. Numerous apps and software programs exist that can perform all pertinent calculations and allow for “what-if” planning that can be very helpful.
For more, see Budgeting Basics
II. Thou Shalt Save and Invest WiselyIt’s important to “pay yourself first” to make sure money is set aside for emergencies and unexpected expenses. Learning the value of compound interest helps you understand how savings can grow well beyond the amount you originally set aside.
Understanding how to invest and which types of investments to make at each stage of your life is critical. Some financial planners promote market timing or predicting future market prices as a strategy. Most experts, however, suggest a more cautious buy-and-hold strategy.
For more, see Buy-And-Hold Investing vs. Market Timing
III. Thou Shalt Not OverspendThis sounds simple enough – don’t spend more than you earn. The problem is most people have to borrow from time to time – buying a house is one good example.
Learning when to buy a car vs. lease one, when to rent a place to live vs. diving into a mortgage, even when to purchase a subscription (to software for example) vs. buying outright, which is sometimes the better financial move.
For more, see Lose 10 Pounds Of Overspending
IV. Thou Shalt Pay Bills on TimeOne of the fastest ways to ruin your credit score is to constantly pay bills late – or even worse, miss payments.
If you buy something on time or purchase a service that requires payments, make those payments on time – always.
For more, see What Is A Good Credit Score?
V. Thou Shalt Limit DebtThe best way to limit debt is to not have any. Pay off credit card balances and only take out loans when you are unable to save the money up front.
Using a debit card is another way to ensure you will not be paying for accumulated small purchases over an extended period – with interest.
For more, see Digging Out Of Personal Debt.
VI. Thou Shalt Teach Thy Children About MoneyBesides just being part of good parenting, taking time to teach your children about the value of money and how to save, invest and spend wisely can pay off down the road.
That is, unless you relish the idea of your adult children living in your basement and depending on you for support, food and housing because you failed to teach them how to spend wisely.
For more, see Teaching Financial Literacy To Kids: Earning Money
VII. Thou Shalt Buy InsuranceInsurance of all kinds – health, auto, homeowners and life – is a hedge against financial catastrophe. You cannot afford to gamble on a major financial loss that could bankrupt you and cause economic ruin.
At the same time, it’s important to study your options carefully. Not all insurance is the same and the effort you take to educate yourself can pay off in the end.
For more, see Introduction to Insurance
VIII. Thou Shalt Plan for RetirementInvesting is only one part of planning for retirement. Other strategies include waiting as long as possible before signing up for Social Security (which is smart for most people) and making sure you get the full company 401(k) match available to you from your employer.
Learn about other retirement saving and investment options, including IRAs and take the time to use available calculators to determine just how much money you will need in retirement.
For more, see Retirement Planning Basics
IX. Thou Shalt Have a WillTo protect the assets in your estate and ensure that your wishes are followed when you die, be sure you make a will or trust.
Other critical documents include a living will and healthcare power of attorney. While not all these documents directly affect you, all of them can save your heirs considerable time and expense when you fall ill and when your estate is settled.
For more, see Estate Planning Basics
X. Thou Shalt DonateThis one is not just about the income-tax deduction you could receive – thereby benefiting you directly at tax time – it’s also about the goodwill you create and the charitable works you support in your community.
Not all donations are financial. You can also donate your time, energy and skill – deducting mileage and other expenses while building up a sense of accomplishment and satisfaction that has no price.
For more, see To Donate or Not to Donate: Tips for Charitable Giving
The Bottom LineThese Ten Commandments of Personal Finance provide simple, common-sense guidelines about how to handle income, save and lead a happier, healthier, less stressful financial life.
Controlling spending, investing wisely and thinking about your financial future are generally not difficult if you develop a plan and follow it.
Read more: The Ten Commandments of Personal Finance http://www.investopedia.com/articles/personal-finance/102915/ten-commandments-personal-finance.asp#ixzz3t72rXO1X
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