Many people get intimidated when it comes to personal finance because they don’t understand it. There is a lot of information available that can easily overwhelm anyone who’s new to investing. Time is your biggest asset (not money like most think), so don’t procrastinate with your personal finance strategy. Here is a simple to follow strategy to manage your money.
- Creating a Budget
First thing anyone, who wants to get their money right, should do is create a budget. How can you put together a personal finance strategy if you don’t know how much money is coming in and going out?
2. 50/30/20 Budget
Once you have your budget on paper, allocate your income as closely to the 50/30/20 budget format as you can.
50% of your money should go to essentials like:
- Car payment
- Utility bills
- Health Insurance
30% of your money can go to wants:
- Dining out
20% of your money should go to savings:
- Rainy Day fund (should be able to cover 3-6 months of expenses if you had to stop working)
- Retirement Savings (Roth IRA, 401K, Traditional IRA)
- For your financial goals (investment opportunities – real estate, equities, business, etc..)
3. Pay Down bad debt
One of the single most important actions you can take for your personal finance strategy is to pay down your bad debt.
- High interest rate credit cards and loans
- Pay down student loans as quickly as you can. Do not defer your payments, the interest keeps accumulating on your loan in deferment. This will take some sacrifice on your lifestyle but you will thank me when they’re gone.
- Car payment – You should be able to pay off your car in 4 years
4. Consider how you can create multiple income streams
If one of your goals is to retire early or have the financial freedom to pursue your passions outside of your career; you will probably need to create additional income streams.
Some easy ways to do so are:
- Invest in dividend paying stocks or dividend paying ETF’s
- Side hustle like freelancing on Fiverr
- Flip products on Ebay or sell handmade items on Etsy
- Pet Sitting
- Sell photos on Shutterstock
- Consult in your field of expertise
**Bonus Personal Finance Tip on Investing**
For those of you who are skittish about investing in the Stock Market because of the ‘up and down’ swings; consider investing into a low volatility Exchange Traded Fund that focuses on dividend paying stocks.
Low Volatility ETF’s focus on investing in large companies that are stable and don’t have a history of large swings in stock price. In particular, my favorite one right now is the PowerShares S&P 500 High Dividend Low Volatility Portfolio (Ticker symbol:SPHD). It tracks the S&P 500 Low Volatility High Dividend Index, which is a collection of the 50 highest yielding (paying) S&P members with the lowest trailing 12 month volatility.
SPHD is currently paying a 3.5-4% monthly dividend, which, I recommend re-investing into the fund to buy more shares. That way you can take advantage of compound interest.
SPHD has paid a higher dividend than the S&P 500 and has only slightly trailed the S&P 500 in terms of overall returns, but it accomplished the goal of being less volatile.
You can purchase this fund on M1 Finance with no trading fees like traditional brokerage accounts. Let your money work for you and retire early!
Following this basic strategy will allow you to gain control of your financial future.
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