Personal Finance For Beginners_Kate Parham

When you take that first leap toward financial independence, it can be rather overwhelming. People start throwing abbreviations at you like FICO and IRA, and you may often be left scratching your head. Don’t worry! With these five easy steps, you’ll be well on your way to financial success:

Institute a firm monthly budget.

Getting organized is one of the most important things you can do to ensure financial success and freedom. If you don’t know where you stand (i.e. how much you bring in and where your money is going), you’ll have a hard time getting to where you want to go. You can never have too little or too much money to take this important step, so don’t wait.

Start by creating a spreadsheet for the past 12 months’ expenses. Look at everything from mortgage/rent and insurance to groceries and movie tickets. Be honest with yourself, as you’ll need an accurate representation of your spending each month. Separate things into categories to make it easier. Then, add a column for your income over the last 12 months. Once you have all of your data inputted, subtract your total expenses from your total income. This will give you your net income, which ideally, should be positive. If you’re net income is negative, it’s time to get really serious about creating a budget planner you can stick to.

Follow these three "Golden Rules" to get started with a budget planner:

• Know how much you spend each month AND how much you have coming in to support your spending. Don’t spend more than you have. You want your net income to be positive every single month.
• Keep close track of your spending every day and hold yourself accountable.
• Find areas where you can cut back. It can be overwhelming when you first realize how much money you spend at Starbucks, but once you know, you can begin cutting back and get your financial life on the right track.

Establish an emergency fund.

We’ve all been there: the battery in your car just died or you had an unexpected medical expense or, worse, you got laid off. While these times will always be stressful, you can ease much of the pain by having a rainy day savings fund. Try to establish an emergency fund that has enough money to cover six months worth of basic living expenses, including all the items that you HAVE to pay every month, i.e. rent, car payments, credit card bills, etc. Use your budget planner to determine all of your basic living expenses each month and then multiply it by at least six, more if you want some extra cushion. For example, if you spend $1200 a month on basic living expenses, you’ll need an emergency fund of at least $7200. This will ensure that those rainy days are a little bit sunnier.

Get out of debt.

Debt is probably the single biggest factor keeping you from achieving your financial dreams. Debt is the enemy and the sooner you pull yourself out of it, the closer you’ll be to financial freedom.

Once you make the decision to rid yourself of debt, you can get started by focusing on paying off the debts with the highest interest rate first or by employing the debt snowball technique. If you're not sure how to make most efficient use of your money to get out of debt, there are also affordable debt management programs available to show you exactly what debts to pay off first, keep you motivated and get you out of debt faster. Just like starting a budget planner, it doesn't really matter what method you choose, just that you get started today.

Pay yourself first.

Whether you’re in debt or not, you CANNOT put off saving for retirement. It’s okay to be selfish. You are your #1 employee. It’s time to stop putting the companies you owe money to at the top of your list. Paying yourself first is one of the most important money foundation principles you can learn that will be beneficial to you no matter what income you are earning.

Whatever your gross salary is, you should be putting at least 10 percent away for the future. Make it automatic so you don’t have to think about it and so you don't talk yourself into buying a new pair of shoes instead. And if your company offers any kind of a match, you absolutely must take advantage of it. This is essentially free money!

Build your credit score.

Your credit score is one of the single most important numbers that you will ever possess. This little three-digit number will dictate how much you have to pay when you buy a car, a house or borrow money. To begin building credit, you need to open a credit account in your name. Like most things in life, you need to use credit responsibly to build credit and get more of it.

Always pay off your full balances every month on time, no questions asked. Remember, debt is the enemy. You should also keep your spending well under 50 percent of your available credit each month. Other factors that affect your credit score include your payment history, your outstanding debt and the number of inquiries on your credit report, which you’ll need to obtain immediately. Once you know your credit score, you can take the necessary steps to improve it.

Get your personal finances on track and keep them there with helpful tips and tools from Quizzle.com, including a Debt Management Program that will help you get out of debt faster and a Credit Action Plan that will educate you about how to reach your full credit potential.

By: Kate Parham

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Reference :

- http://shine.yahoo.com/channel/life/personal-finance-for-beginners-2475978/