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Course: Personal finance > Unit 2
Lesson 1: Advice for individualsWhat is the bare minimum I need to know to avoid ruining my life?
Discover why keeping tabs on your finances is key to a worry-free life. Don't fall for the allure of immediate pleasures that lead to long-term stress. Get a handle on your income and expenses, and make a habit of living within your means. You don't need to be a finance whiz, just a little number crunching can keep your financial health in tip-top shape.
Want to join the conversation?
To make and keep a budget I've started with keeping and balancing a checkbook but Sal is suggesting using my bank/credit union's online features. I'm concerned that a bank would not be completely objective. Aren't they always trying to steer me toward buying more of their financial products (like credit cards or car loans) instead of keeping me healthy? Also what if I change banks? There go all my records...
I did buy a program called Quicken for balancing my checkbook thinking that would be a step up. It seems to be independent but it was most basically installed and I was just learning to use it when it starts telling me I had to buy an upgrade and start all over.
And then there's tax software...
I really need to know about cottage industry, good paper trails, tax reporting, need-based/paying back need-based, and good record keeping because I'm relying on "hobby income" more and more to round out my tiny paycheck...
Paper records? Online bank features? Quicken et al?
What are the pros and cons of each?(29 votes)
Personally, I use EveryDollar. It's free and it is based off of Dave Ramsey's advice, so it's heavily geared to saving instead of spending. It's online, so it never has to update and the records are always available 24/7. I highly recommend looking it up.(6 votes)
I'm a beginner in finances.
I have a few basic resources I have read concerning finance (more like tips to better handle your money rather than finance itself), and right now I'm taking Khan's classes--but where is the best place to start? In other words, how do I know I'm learning it right? Do I take the time to first study its vocabulary in some way? I want to make sure I comprehend finance as best as possible, but right now I feel lost.(9 votes)
Diarasis-- It's a tough world!
Check out Larry Burkett's Money Matters talk show. Larry is dead now, but he was very wise with money and was great at teaching others.
Otherwise, my advice is shop at the dump (I'm not kidding, I find amazing stuff there including printers and TVs), Goodwill, and thrift shops. Shop sales at stores and stock up. Learn what good prices are for different items. Cut up your credit cards if you are prone to overspending. At my local thrift store, I shopped their sale on already crazy low prices and got 5 pairs of shorts for $1.25, and one pair was Eddie Bauer in brand new condition! I've gotten handmade dresses for $1, and I've found some really good stuff on websites such as Freecycle (check them out!). Be smart with your money. Remember, a fool and his money are soon parted. But also remember, the best things in life can't be bought. Good luck, and God bless. :) --Emily(14 votes)
How can I avoid sending too much or on stupid stuff?(5 votes)
One of the best ways is to weigh pros and cons. What will this thing do for me? What benefits or repercussions does it have? Will this affect me negatively or positively in the long run? What I really think you can do to avoid spending too much is, like Sal said, subtracting your necessities from your total paycheck. For instance, if you receive $3,200 (after taxes) per month, but you spend $2,600 on groceries, bills, rent, etc, you'd only have roughly $600 left for wants. It's the basic want vs. need. Also, to avoid spending on "stupid stuff", ask yourself "Do I really need this? And even if I don't, is there any good that could come out of buying this?"(3 votes)
Let's say that you really wanted something a few months ago and you decided that I should save enough money for it. So I was able to get all the right amount of money but I don't know if I should get it. It is a want, but I worked really hard for it, but it is going to help me in the long run. What should I do?(4 votes)
You are, indeed, in a quandry. I'm not sure if you're referring to me or to yourself, because sometimes you write "you" and other times you write "I".
If I understand this correctly, you decided some months ago to purchase an item. Then you saved the money for it. Now, you're not sure if you still want this item. You seem to believe that your original desire plus your subsequent work mean that now you must buy the item.
You don't.
Now that you have the money, you can ask yourself if the person you are after all the work to save the money is the same person who wanted the item long ago.
It is not wrong to want things. It is not wrong to buy them. Neither is it wrong to change your mind.
Relax. Buy that item, or something else, or hold onto the money you have saved. All are OK. What is important, though, is that you enjoy whatever it is that you decide to do.(17 votes)
- what does it mean to "live above your means"(5 votes)
- Your "means" are the amount of resources available to you for use. If that is $1000 per month, but the amount that you use (for necessary expenses plus the other stuff you like to buy and have) is $1100 per month, then you are living "above your means" by $100 every month.(6 votes)
One thing about budgeting is trying to know when you won't be able to buy that item you want but I do have a question about budgeting.
When purchasing items that are higher priced is it sometimes better to purchase quality then the price of a product?
For example Cars,Homes etc. I have seen people purchase cheap electronic items only to see it last less then a few months while others purchased more expensive items and budgeted to save for this type of purchase to have the item last for years. How do you decide based on quality or vs. pricing to me sometimes quality saves you money.(5 votes)- sometimes you can tell something is what they used to call "cheap" just handling it and looking it over. the more expensive one isn't always better but yeah, I agree with Katrina. play the long game.
leather shoes, 100% cotton denim, wool socks...(3 votes)
This is so interesting anyone that agrees with me vote it up(6 votes)
who else thought It was weird to watch his video, hear his voice, AND SEE HIS FACE? I was not prepaired!!(4 votes)- Well, I've seen his face on other videos so I didn't think it was weird.
I believe he was trying to make this more personal by showing his face instead of being that one guy in the video with colorful pens.(4 votes)
- How do I pay off credit card dept quickly?(3 votes)
- It isn't a matter of "quickly". It's a matter of steadily. Lots of companies will apply interest, meaning a percentage of your loan is charged to you as the privilege of using their services. If you have the money to pay off your debt, sure, do that. But make sure to analyze your actions. I suggest, that if you have credit card debt, to pay it off in steady increments. If you owe $500, paying $100 plus interest every month. That way you have money left over and you aren't scrounging for pennies to get you through the rest of the month, but you are still paying off your debt as you go. You'll still accumulate your interest fees, but it's better than waiting 2 years and owing an additional $300 in interest.(3 votes)
- I definitely need to start doing that. I think that monitoring how much I spend every month on the things i like to do is important. I should know how much I am spending on those activities.(4 votes)
Video transcript
- It's typical in human psychology, when something seems a
little bit intimidating, or if something might give you
answers that you don't like, to kinda ignore it, and
pretend like it's not there. And money is one of those
things that I think some people, like, well, if I really
were to look at the money, my finances, one it might
be a little intimidating. But also, it might give me
an answer that I don't like. It might say that actually, I can't afford that fancy sports car, or I can't afford that fancy dress or that fancy suit. And I don't like that answer. I wanna be able to buy that thing. I wanna go to the fancy
restaurant with my friends. And so I'm just gonna kind of ignore it. Don't do that. That is setting yourself up for disaster. You know, in the short-term, yeah, you might enjoy that nice meal, that nice vacation, the fancy car. But in the long-term
if you're not thinking about your finances,
you're gonna have nights where you're staying up all night. It's gonna cause you stress,
it's gonna make it hard for you to engage with your
family, your friends, with work. And so, short-term gain for long-term pain is
not a good trade off. So I would encourage you,
you don't have to get a PhD in finance, or have
to do super complicated spreadsheets or anything like that. But just do basic,
back-of-the-envelope calculations. How much after tax income are
you bringing in every month? And look at the after tax income. So look at your pay stub. How much is coming in every month? And then what are your expenditures? How much you spend on rent,
how much do you have to, if you have a car, how much
are you spending on that. How much are you spending on insurance. How much are you spending on groceries, how much are you spending on eating out? How much are you spending on clothes, on vacations, on other things? And just have a general sense of this. And one, write down what
you think you're spending on these things, but then
go into your bank account. You know, you have online banking now. You can see what you actually
spent on these things, and I think you might get surprised at, hey, I thought I was only spending $100 a month on eating out. Oh wow, I'm spending $350
a month on eating out. That's a lot more than I thought. So do all of that, make
sure that at minimum, you're living in a sustainable way. That you can afford your
rent, the way you're living, your car payment, your
insurance, and all that. But ideally, and this is something that I tell to everyone who'll listen, I tell myself, I tell my children. Live below your means.