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April 8th, 2013 |
Starting on the Road to Financial Security:
Take Control of Your Financial Future!
Reaching a point of financial security is a process that takes time, effort and perhaps some sacrifices; however, the results are worth it. By starting early, you put time on your side. Put yourself in a good position financially right from the beginning and you can make your life easier and minimize the sacrifices you may be forced to make later.
What is financial security?
Financial security consists of the following:
Why is a solid financial foundation important?
You are ultimately responsible for your financial well-being. Your decisions will affect how you live on a day-to-day basis and in the long term. Handling the financial issues associated with starting out, establishing a household and assume more responsibilities can be stressful. A solid financial foundation can help you spend less time and effort worrying about your finances so you can devote your time and energy to other important matters like your job, your family and your future.
Building a solid financial foundation
First identify a few very broad goals:
Components of a solid financial foundation
Monitor and control your spending
Monitoring and controlling your spending may sound ominous, but that does not have to be the case. Consider breaking it into pieces: First, you need to know your monthly income. While you may be earning interest and dividends on savings accounts or investments, let’s just focus on income from your job. Every pay period (weekly, semi-monthly or monthly), you earn a certain amount. However, the check you receive is reduced by taxes that are withheld, your share of employee benefits (primarily health insurance), contributions to your company’s retirement plan and any other deductions you may have. The amount you have left is your monthly net income to pay your bills; hopefully there will be some left over for you to save.
Next, break your expenses into those that are fixed and those you can control. Fixed expenses include rent, parking, other insurance (such as renter’s and auto insurance), utilities and recurring medical costs. You probably have some level of control over most of your other expenses.
Finally, subtract your fixed expenses from your net income. That is how much you have to cover your other living expenses and any discretionary spending. Make sure you manage your other living expenses and miscellaneous spending to have money left over each month.
Building some net worth
Accumulating net worth takes time and some discipline. Here are three ideas that can help:
Establishing a good credit record
Three large companies compile information on the borrowing history of almost everyone. They get their information from credit card companies, utilities, financial institutions and other companies. Every time you apply for credit, whether it is completing a credit card application, getting an auto loan or signing a lease for an apartment, the company you are working with will probably request a credit report on you.
Lenders use those credit reports to make decisions on whether to grant you credit, make a loan and in many cases what interest rates to charge. Therefore, it is important to have a good credit report. While there are many factors that go into your credit report, the most important ones include timeliness of payments, how much you owe in total and how many companies you still need to pay back.
Here are some guidelines to help you build and maintain a solid credit rating:
Establishing good financial habits
Use the checklist below to help put you on the road to financial security:
Make sure your financial information and records are organized.
Use direct deposit for your paycheck.
Participate in your employer’s retirement plan and contribute as much as you can.
Set up an automatic savings program.
Prepare a household spending worksheet.
Periodically prepare a personal balance sheet.
Use as few credit cards as possible.
Review all your bills and statements as soon as you receive them.
Make credit card payments promptly and pay more than the minimum.
Be sensitive to fees and interest rates.
Learn more about handling your finances by reading personal finance columns in newspapers and personal finance magazines.
Celebrate National Financial Literacy Month with Sandy Spring Bank!
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