A Beginners Guide to Investing and Budgeting

It is an unfortunate fact that many Americans go through life without ever considering budgeting, yet it is an essential financial tool if you wish to retire and live in comfort. The problem for many people is that the sheer mention of the word equates to pain – something they do not want to do – so they bury their heads in the sand and continue to spend without any thought for tomorrow; this is the road to disaster.

A parallel might be a visit to the dentist. Nobody WANTS to go to the dentist, but most people understand that it is only common sense to have a regular check-up. Of course, a small percentage of folk will wait until they are in so much pain that they have no choice but to go to the dentist. Equally, some people will avoid budgeting for as long as possible and finish up with no retirement savings and in debt.

If the word “budgeting” upsets you, why not call it something like “personal financial control” which is, after all, exactly what it is?

Budgeting simply makes sense, and in the 21st century there are several online tools, such as Quicken and Mint, for example, that can help you budget and make the whole process very simple. Once you have set up your personal details – which might take an hour or two – it is then a matter of logging in for a few minutes once a week to check that you are on track. These services will also do other things such as remind you to pay bills on time, for instance.

Using budgeting will allow you to see very quickly where you stand financially so that you can make adjustments as necessary. You will be in good company as budgeting is used by businesses large and small such as Ford Motor Company, and by people like Warren Buffet. These people simply could not run their businesses without keeping track of their income and outgoings – they would go broke in no time if they didn’t.

If the thought of having your personal financial details online worries you, bear in mind that Mint, Quicken, and so on, use 128-bit encryption which is the same as your bank uses. The difference is that, Mint, for instance, is read-only, so that even if by some miracle someone hacked into your account, the worst that could happen is they could mess up your budget details. Your money is not at risk; Mint is actually safer than your bank.

Once you start to use these free online tools you will very quickly begin to see where you can make savings. You might discover that you spend $400 a month on clothes. Do you REALLY need to spend that amount on clothes each month? You can only wear one dress/suit/pair of jeans at a time.

Perhaps you have dinner out four times a month. Why not consider cutting it down to three? Nobody is going to suggest that you become a monk, but by making small savings here and there you will find that they mount up and you can begin to use them to make investments for your future. At the very least, when you have your budget under control you will start to have great peace of mind knowing that you can pay your bills on time. You will also be confident that you have enough money to cover emergencies. If the gearbox on your car breaks, you will have enough money to get it fixed right away. Without budgeting, you may find that you have to walk or take a bus.

Once your income starts to accrue, you can begin to make investments for the future. Financial planning is critical when it comes to stability and your well-being in the years ahead. There are a whole range of investment options available, including stocks and shares, mutual funds, gold, IRA’s, 401k’s, bonds, savings accounts, and more.

Of course, unless you are an expert or engaged in the world of finance yourself, the number of possibilities may seem bewildering, so this is where taking the advice of a specialist financial advisor is an extremely good idea. Everybody’s situation is different, but a good financial advisor will be able to sit down with you, ascertain your circumstances, discover your ambitions for the future, and then produce a plan which will give you the best returns for your money.

Many people start with a 401k because your employer matches what you save up to 3% of your income. So if you earn $40,000 and put 3% – $1,200 – into your 401k, so does your employer. You can put in more than 3% if you wish, but your employer stops at the 3% figure. Furthermore, the money is not taxable until you actually withdraw it.

With a 401k, you can choose where your money is invested. 41% of the money in 401k’s is invested in equity funds. However, the percentage drops with age. Americans in their 30’s and 40’s put half of their retirement investment into equities, while those approaching retirement only put around a third into them, preferring stable value funds and guaranteed investment contracts. Younger investors in their 20’s tend to go for target date investments, putting a quarter of their money into those.

One of the major reasons for saving, for the younger investor, is to create a deposit for buying that first home. The bigger the deposit that you can put down, the less money you will need to borrow. Then it is a question of finding the right mortgage. A not-for-profit, member-owned institution such as Mountain America Credit Union has a full range of plans available and is certain to have one that suits your circumstances.

 Article Written By Writer: James Smith

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