Reduce Debt Increase Wealth

Personal Finance

August 15, 2021 MisterChuck Season 2 Episode 74
Reduce Debt Increase Wealth
Personal Finance
Show Notes Transcript

What is personal finance? Why personal finance is important, and how does it affect everyone's  life. This episode Mister Chuck goes over the basic things that personal finance includes.


Article Links:
 https://www.investopedia.com/terms/p/personalfinance.asp By WILL KENTON

Charles McDonald:

Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time. debt reduction to achieve financial freedom takes commitment, confidence, determination. Personal Finance tidbit, what really is personal finance. Personal Finance is about meeting personal financial goals, whether it's having enough for a short term financial needs, planning for retirement, or saving for your child's college education. It all depends on your income, expenses, living requirements, and individual goals and desires. And coming up with a plan to fulfill those needs, within your financial constraints to make the most of your income and savings, it's important to become financially literate. So you can distinguish between good and bad advice and make smart decisions. Most people think personal finance is just doing a budget. That's one aspect of personal finance. You have to have a plan. What are your plans short term? What do you want to accomplish in the next two to five years? mid term five to 10 years? What would you like to accomplish? accomplish within the, you know, eight, nine years from now? And then long term 20, 30 years down the road? Where you think you're gonna be as far as your finance as far as your career, as far as your income? All those things? Where are you going to be living? Are you going to be married, divorce children, no children. All that kind of information is what you consider also includes banking, anything to do with your money, or getting money, or protecting yourself, which would include banking, have be a checking and savings account, insurance, whether it's life insurance, disability insurance, health insurance, auto insurance, homeowners insurance, insurance is there to protect you from something bad. So when something bad happens, you're going to be covered. And you're not going to assume all the loss yourself also includes borrowing money, whether you're borrowing money, a mortgage for a home, or borrowing money for auto loan, or use auto, or a personal loan to pay off something, or even student loan. It's all those things are included investments. What are you going to do once your emergency fund savings account hits a certain point where all you should be investing for the long term, which is retirement planning. And you also have tax planning, and estate planning, estate planning is what's going to happen to all your assets and money. Once you pass away. Don't let it up to the government to decide. Because you won't be able to pass anything along to the people you love the most are the people you want to have whatever assets you may have, at any particular time. As far as tax planning, if you're getting a big tax refund every year you're not doing it right. You should have your taxes withheld if you're an employee, so that when you file your tax return, you mi ght get maybe $500, $1,500 refund, that's just a arbitrary number. If you're getting three $5,000, $10,000 back all at once every year, you're paying in too much. Why are you investing with the government we're not going to pay you in the interest. So invest in the bank or in long term investments where you can make more money. The goal here is to take what you have maximize what you have by being smart. That's what personal finances is all about. So what can you do? Well, we the big budget. II don't know what you have or what you can do it when you set these goals. How do you know if you're gonna meet them or not? How do you You know where you are today versus where you're gonna be a year from now? Well, yes, maybe, you know, maybe a year from now, you know, well, I changed jobs, and I'm making $3 more an hour. Okay, that's good. What you do with that money? If you live in paycheck to paycheck, and you're always coming up short, and you need to borrow money to get that extra one day because you have a bill, do you don't have a personal finance plan? at all starts with knowing how much income you have, how much expenses is going out? Why are you paying out how much of that you can satisfy? Whether you're setting up a emergency fund first, or just increasing your savings, have the savings for that unexpected expense comes up, it helps you reduce the amount of credit you have to use. Credit is good. Sometimes credit is needed. When you buy big assets like a home, you get a mortgage, that's credit, buying an automobile, you get a car loan, that's credit, credit cards are good. Credit cards can be bad. It all depends on how you use them. If you use them, if you tend to overspend by things, you don't really need that discipline. And you're spending, you're gonna have trouble with credit cards. My mother always taught me if you have a credit card, use it like cash, don't use it if you don't have the money to pay for what you're buying. And that holds true, especially today. Since ever, since we're buying things online, you need a credit card to pay for the things that you're buying. But you also should have the money or be getting the money fairly soon, in order to pay for that item that you're buying. It's a simple concept. It's just like using cash. If you have cash, you can buy something. If you don't have cash, he can't buy anything. They give you credit for a reason. Because credit enables you to buy things that you don't currently have the money to buy. He got to be careful. How do you know? Well, the first thing is you set up a budget, money and money out have talked about the budget the last episode, so I'm not gonna go any detail. There's different methods of budgeting, whatever works for you. The most important thing is having a budget, updating it every month, looking at it, reviewing the budget on a regular basis at least once a week. If you're not looking at it, how do you know if you're staying within it. The second most important thing is an emergency fund, which is basically a savings account where you set money aside so that you have the money when something big comes on or unexpected, which could be a medical bill, a car repair paycheck that was a little bit less than what he was expecting, and you have some expenses coming up, that you have to pay you have the money to put in pay those things without having to borrow money without having to use a credit card, you got to limit your debt. They keep your debt from getting out of hand, don't spend more than you earn. Well, that's pretty basic. Use it like cash as much as possible. Now one thing you can do with credit card is nowadays you can go online for your credit card, and you can make a payment every week. If you want to, you can make a payment every pay day. Let's say you use your credit card and you charge $200. When the next pay comes up, you pay off the $200 that's using your credit card like cash and you got to keep it under control. Because credit cards have a high rate of interest. The reason they charge so much interest is because there's so many people charging up their balances and then not able to pay them off. Whether they file bankruptcy or they disappear. They just quit paying them. Whatever. If you do that your credit score is gonna go down. It will make it more difficult for you to borrow money when you need it. Like for a mortgage or a car. So use it wisely. Don't fall in the trap, don't pay the minimum payment, if you have the money to pay it off, keep your balances low. So it's managed correctly, and you will be rewarded for it by a higher credit score, then you got to monitor your credit score, I say at least a couple times a year, then you must consider your family, the important part of personal finance is ensuring that if something happens to you, your family is going to be taken care of. and it varies depending on how much income you make, how much wealth you have, well, you need to set up some type of trust. And that would be an attorney to help you or the insurance, auto home life disability, long care, long term care, you know, life insurance, if you would get killed, it should be enough for your wife and children to live on until all your children are legal age, at least at the very minimum, you got to take care of your family and life insurance will do that. If something happens to you and you're no longer able to work, or you can't work the same career that you work in then then disability insurance would be something you need to consider a living will healthcare power attorney are all important. This is all personal finance. Why? Because it affects your finances. pay off your student loans. Still loans, I don't know it's kind of a topic that's been floating around for years. Some of the politicians saying that they're gonna cancel all student loan, but it never seems to happen. That I did a episode on student loans. If you work for a government agency for 10 years and make timely payments, the rest of it could be taken away. So there are ways to get your student loans go away, but you have to know what they are. And the most important thing, I don't care if you're your first job, and you're 22 years old first career job, you need to start setting money aside for your retirement, the earlier you're start, the smaller amount you can put in and the more you're going to have when you retire. So the longer you do it, and be consistent, the more you're going to have when you get to retirement. with inflation, the more you have, the better off you're gonna be. If you're wait till you're 50 years old to start, you're going to come up short, he may not be able to enjoy life, like you plant, you may not be able to do those things like travel, buy that vacation home somewhere in the mountains or on the beach. So start the day. And it would be less daunting, because it's a smaller amount. If your employer offers any type of retirement plan, and they have a match, you need to contribute the maximum amount that your employer is gonna match. And over time, if that match goes up, you need to keep increasing yours, because you're leaving money on the table. That's a benefit your employer has given you. If you don't take advantage of it. The employer is not going to say nothing, but you're just hurting yourself. And then you need to maximize all tax breaks. That's tax planning. He got to know about it. If you don't know much about taxes, ask the person who does your tax return. They'll give you some insight of where you can maybe make some changes to decrease your taxes and give yourself a plan a break. You can budget for vacations or that item you would like to buy down the road, whether it's a muscle car, or long vacation or two week vacation somewhere or whatever, you can budget for it, you can set aside money so you don't have to use credit. When the time comes to enjoy yourself. You can enjoy yourself and not have to be concerned or worried about how you're going to pay back down the road. I have a link to an article investopedia.com terms. Personal Finance he I have a link in my show notes for those of you who may be interested. I just went over the basics of personal finance. Now I'm going to go back and talk about the important part. That everybody needs to be concerned about. If you're starting your first job, you have income. The first thing you need to have is a checking account. Unless you do not owe or have any bills to pay, he can get in get by with a savings account. That way you can take your paycheck to a bank, cash it, put money in a savings account, and take some cash for whatever you need until next payday. If you have bills to pay, you, then you need a checking account. So you set up a checking account. And you should also have a savings account, you need to have a savings account to put your money in to build up an emergency fund. So you don't have to keep using credit. Once you have that done, you need to keep track of your check register. Check register is a recording of everything you are spending money on and your deposits. Your deposits would be your paycheck, it may may have a direct deposit, but you need to enter that into a check register that he keep track of. So you know how much is going in your checking account, you know what the bills you have to pay. And you should know how much is coming out of the checking account. If you don't use some money, and you keep a say a balance of at least a minimum of $100. And at the end of the month, you have $500 in there, you need to transfer the excess money that you did not spend to a savings account. That way you have a start on your emergency fund. If you don't know what check roaster do use, go to my web page reduce debt increase wealth calm, link the like, support the show the heart, it will take you to count about it's a check register online, so you don't have to download anything. It's $9.99 or $9.95 per year, at write per year. You can manually enter it don't take long, you can set up recurring entry. It's easy to use, easy to learn. I do get some affiliate fees for doing that. But there's not a whole lot. Count about. And once you have all that set up, the next thing you need to do is a budget. How much do you know how much to budget for? Well, it's hard to say if you are just getting started, you might have to wait 30 or 60 days to see what items that you are paying for on a regular basis. If you've already been doing this for a while, he can look back and at your checking account your check roster and see what items you pay every month. And you throw that in the budget. And you make categories housing, transportation, food and entertainment, clothing savings, five major categories, you should be able to fit everything in there. One more category if you need it. debt, credit card debt. And once you have credit card debt, if you're struggling to get out of credit card debt, the first thing you need to do is quit creating new debt. So that emergency fund is important that savings account. Second thing you need to do is make the minimum payment on all your credit card debt. A third thing you need to do is build up your savings account to a point where you have more than what you need for your emergency fund. He take that exit access mount of money out and you pay down one of those credit cards, you can use the snowball method, which is paying the lowest balance first and progressing on from there. Or you can do the avalanche method, which you pay off the highest rate of interest first. So that's up to you. Once you have that under control. Now you need insurance insurance is to protect your finance in case something bad happens. So we start out with auto insurance because you got a loan on the car, you're required to have auto insurance. If you have your own home, you're going to be required to have homeowners insurance to protect the lenders, if you're a runner, you should have renter's insurance to protect your furnishings and your assets you have in that apartment or condo, whatever you're renting. After that, what you need to do if you have a family, you might need life insurance. If you're the sole breadwinner, what's your wife and children gonna do is something bad happens to you, and you're no longer around to support them. So that would be life insurance. If you have a job, where is risky, are you there's a lot of injuries, and you probably should have some type of disability insurance in case you get injured at work. And you'll have some money coming in to pay the bills while you're disabled, or while you're in the hospital, those type of things. Insurance is very important for personal finance, because it's designed to protect your finances, and Jacob enjoy a fruitful and better life. After insurance, we need to be savings for retirement. Everybody needs to start savings retirement as early as possible. And I recovered that earlier. The other two items is tax planning. If you get a big refund, you should read reduce your withholdings and your refund should be closer to $1,000 or less. And then the final planning is your estate. What happens if you're deceased, who's going to do what who's going to get what assets, those type of things, you also need to have a health care power of attorney, somebody that can make the health care decisions for you. If you're unable to do so, I'll be back in one moment with my final thought. If you listen to this podcast using an apple podcast app, please rate and review this podcast for all your non Apple users. You can download iTunes on a Windows machine and go to the upper left hand corner, select podcast, do a search reduced that increase wealth, you can then rate and reviewed the podcast and also follow the podcast. I appreciate any feedback that I may get. Personal Finance is more than just keeping a budget or figuring out a budget. It starts with having a plan. What are your goals? Short term, mid term long term? What's your debt situation like currently? Where do you want it to be? How's your insurance? Do you have all the insurance that you need? Or do you maybe have too much insurance. It's a constant review of your finances on a regular basis to make sure you're doing everything you can do to minimize your expenses to maximize your income to be live your life the fullest you can do with the mouth and assets you have. Some people are happy making a little bit of money. It doesn't take a whole lot to make them happy. Other people can't make enough money. That doesn't matter how much money you make. Whether you make 20,000 a year, or 200,000 a year, you still need to do the same thing. Have a plan for your future. Have a budget for the current situation going on. Keep track of that. And look back from time this line to see how your finances have changed. the more money you make, the more you have to keep track of things, or you're spending rochat our control because your mindset will be I make 100,000 a year and I have plenty of money. But the reality of it. You may not have plenty of money. You may be broke in a short while There's lots of people who won millions of dollars in the lottery, and five to 10 years later, they're broke, maybe even worse off before winning the big jackpot. So whatever you are in life, whatever you're doing, you need to have a plan, you need to set goals, you need to keep track of your incoming and outgoing expenses, incoming income, outgoing expenses, you may have some type of budget, whatever works for you, something is better than nothing. And you can keep fine tune in it. If you have a budget, you can look and see where your money is going. You can determine what things you no longer need and get rid of it. Or you can find a better plan such as cell phone plant. So you can say money, cuz your goal in life is to live life to the fullest your entire life. And when you retire, do you want to be living on 10,000 a year when you used to 75,000 a year. These are this all arbitrary numbers that I hope you get my point. So plan for your future. Keep track of the present. That's what personal finances is all about.