Reference: Cleo magazine, September 2010 issue, pp. 359-362
Note: This post is written based on the article from Cleo magazine (listed above).
A key to wise money management is financial self-awareness, i.e. knowing your worth.
1. Take stock of your current position: Once a year (on your birthday / January 1 / special day), add up all your assets (everything you own) and subtract all you owe (your liabilities).
2. Every six month: Review your budget.
3. Once a month: Set aside an evening to pay bills and enter them into the appropriate categories in your budget.
Mastering key financial concepts
5 basic areas to focus on to make the money you earn grow and help provide the good things in life:
1. How interest rates and inflation affect your money.
2. The differences between various pension plans.
3. The differences between stocks, bonds and money market funds, and what each can do for you.
4. The various types of bank accounts and loans.
5. Mutual funds - what they are and how to use them.
Dare to take risks
- Keeping money in a bank savings account or even a money market fund when rates are low is never going to make you rich.
- Take a small amount of money - money you can afford to lose - and make an intentionally high-risk investment, e.g. buy speculative stocks, invest in a friend's business, buy shares in an aggressive-growth mutual fund or a high-yield fund.
- Debt should not exceed 20% of your take-home pay.
- Pay the total of current minimum monthly payments as your regular monthly obligation. - List outstanding debts in order according to the number of months left.
- Ignore declining minimum monthly payments. Whatever the minimum is in the first month is the amount you're going to pay until your total creditor shows a lower amount on your statement.
- No matter how many debts you've paid off, you must commit to pay the same amount every month until every debt is paid.
Plan for the future
- Always save and be prepared for emergencies, unexpected changes, and new pleasures.
- Make putting aside money regularly a lifelong habit. Begin by saving a minimum of 3-5% of your take-home salary. Put it in a money market account until you've accumulated six months' worth of living expenses and then branch out into stocks, bonds, mutual funds or real estate.
- Set financial goals. Write them down. Make some short-term (those you can accomplish in 3-6 months) and other long-term for which you will need one or more years.
- Find out how much insurance coverage you have, retirement package, and disability insurance.
- Plan for non-salaried income.