Clueless about finances?

Question

When it comes to finances, I know very little. What are some steps I should take to become more educated in this area?

Answer 1

1) Make out a cash flow statement. This is very simple. Draw a line in the middle of a page. On the left, list your income (how much you actually get paid, not the gross before taxes), on the right list your expenditures, both for a one-month period. This gives you an idea of how much free cash flow you have and if you can satisfy all of your monthly debt obligations.

2) Make out a balance sheet. This is also very simple. Draw a line in the middle. On the left, list your assets - if they are cash or liquid (ie, short-term T-bills), list the value, otherwise don't worry about it for now. On the right, list your liabilities - credit card debt, mortgage, insurance payable, etc. Now you know how indebted you are.

3) If your free cash flow is sufficient for your tastes, choose to invest a certain amount, and invest it as soon as you get paid. There are three types of investments you should build up:
a) Short-term cash in a bank account; I like the HSBC internet accounts, which provide a higher rate of interest with no fees, and transfer money to the checking account at my local bank when I need it.
b) Medium-term cash in a series of CDs or Treasurys or (if you're daring) a mix of bonds and mutual funds. These are moneys to be put towards larger purchases in the future, such as a house, college tuition for your kids, etc.
c) Retirement and Health Savings - through your employer (if they offer one) or through your credit union (join one if you haven't) you can open a 401(k) or Roth IRA. These are monies that are not to be touched until you retire. Aim to put as much as you can stomach in there every paycheck, while making sure to maintain a comfortable cash cushion in your short-term savings.

How much you put into savings is up to you, generally I recommend:
1) 3 months' savings in your short-term account.
2) 6 months' savings in your long-term account.
3) Everything else in your retirement account.

If you have NO SAVINGS, then start with:
1) Build 1 month's savings in the short-term.
2) Take half of what you were putting into short-term savings and put it into retirement.
3) Once you have your 3 months short-term savings, start building your medium-term account, putting half into that and half into retirement.
4) Once your 3-month short-term and 6-month long-term are built, put all your surplus cash into retirement savings, up to the maximum.

Answer 2

You should just read a book or two on the subject. There are tons of them, and they mostly all say the same thing. But it's imperative to master this information. I suggest The Automatic Millionaire or Smart Women Finish Rich by David Bach. Or Young, Fabulous and Broke by Suze Orman. There are many others.

Also, MSN Money and Yahoo! Finance have great info and articles if you want to read for free--also I love the Motley Fool (www.fool.com). They make investing easy to understand and don't use big confusing words and concepts designed to scare you into paying for advice.

Here's the basic info that the ALL say:
1. Pay off credit card debt and then don't rack any more up.
2. Have an emergency fund in a high yield savings account.
3. Save for short term goals in cash (in that same fund).
4. Save for long term goals (retirement) in low cost broadly diversified index funds (in a 401k and Roth IRA).
5. Buy a house, get a fixed rate, and don't rob from your home equity unless it's the direst of circumstances.

Ta Da! You now more than 95% of Americans.

Answer 3

I suggest reading the article at the URL below.

It explains a simple chart which summarizes all US personal finance information into an easy to understand format.

There are only three things you can do to maximize your personal prosperity. Minimize expenses, Minimize liability, Increase your income / net worth.

You can also sign up for their free newsletter which has some good info in it.

I also recommend reading simple books such as Personal Finance for Dummies. This will give you a very good foundation from which you will be able to exponentially grow your knowledge in this area.

Good luck.

Answer 4

PYF= pay yourself first.
Make money, prioritize bills, pay bills
Live on 75% of your income, save/invest the other 25%

etc...

Answer 5

you could try and take a class on finances. there are many books that you couls read.
have fun and good luck !!