A Different Approach To Personal Finance

How to allocate money according to how available you want it to be and how you have spent it.

Dividing up your money.

Some money you will want for retirement. You can't touch this at all. Some must be there when you need it for special financial goals like the kids' college or for emergency needs. Some may be for the short-term goal of becoming a little or a lot richer. Some may be for expenses this year. Some must be available all the time. Perhaps you haven't spent as much as you should on some things? Some must be kept out of reach. Perhaps you have a history of spending too much? Would some sort of graph or a plan for allocating funds help keep you on track on all these financial levels?

Let's make a list of sorts to begin divvying up your resources.

1. Retirement.

If you live you will get there sooner or later. Assuming we all plan to live as long as possible, this is money that must be there when we get there to meet it. How much must you have to live on? How much must you set aside to accumulate that much? How will you accumulate it? 401k? IRA? Both? Other investment strategies? What ever you do, figure the amount you must have to meet these goals and assume this money is completely unavailable to you. Figure what percentage of available income this is and start socking it away where you can't, not won't, but can't touch it.

2. Major financial goals.

College, cars or a new house all fall under major expenses we must plan for. These are all second in priority to retirement and must be. Set aside what you must have in a secure place such as a CD or other high interest FDIC insured account. It should be available when you need it. Assuming you know how long you won't need it for, you can commit it to a CD or some such investment for that period. Figure the percentage that must be deducted for this and set this amount aside regularly.



3. Emergency fund.

An emergency fund should consist in 6 months gross pay at a bare minimum. It must be available at the drop of a hat. A money market savings account will return interest at a healthy level and keep assets liquid.

Figure what you need to sock away to reach that emergency fund total as soon as possible and start saving it right now.

4. This year's big expenses.

A smaller CD, a discount broker's sweep fund, a mutual fund or other similar investment is a great way to meet a short-term financial goal. Know what you have to have and make sure you have it by putting most into one of these accounts and letting your money earn the rest in interest.

5. Debts.

Curb spending in any unneeded areas especially if they will make the rest of this plan impossible. Pay these off before any of the following endeavors. Pay at least $20.00 over minimum on all debts monthly and round to the nearest hundred or two hundred dollars on the highest interest debt. Of course, you may not have any debt.

6. Getting a little or a lot richer.

Put as much of 10% of gross income as still possible after all the above into informed investments, preferably stocks, for at least 5-10 years. If you get a little richer, you will be easier able to handle future financial planning. This item is optional and may end up being non-existent.

7. Live on what's left.

If you can't live on the approximate 30-50% of gross income that is left, go back and decide what you have to have to live on and follow this plan with this item being number one instead of number seven.

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