Taking control of your personal finances doesn’t have to be risky, says Alexa von Tobel, founder and CEO of personal finance site LearnVest.com.
On average, we make 6 to 10 financial decisions every day. With more than 70 percent of Americans living paycheck-to-paycheck, those are some heavy stakes! At a recent money management seminar hosted by AVON cosmetics, LearnVest.com CEO Alexa von Tobel shared with us the basics of personal finance. Here are her top financial tips.
Alexa recommends having as few accounts as possible. This means streamlining the number of bank accounts in your name and taking control of credit cards and 401(k) or other savings funds. Create a single email address that you use for all bills, e-statements and online banking. And, perhaps most importantly, implement a “money minute” every morning where you check in on bank account and credit card balances. That way, you’ll always have a clear understanding of your financial situation.
Know your numbers
You should know exactly what your monthly income is, meaning the amount of money you take home after taxes and benefits have been subtracted from your paycheck. Another important “number to know” is just how much your life costs you. How much do you spend on rent, transportation, groceries and entertainment? Add up all of your monthly expenses. Finally, know your credit score. According to Alexa, it should be at least 700 but the ideal is somewhere around 760 or more.
Have a budget
We all know we should have one. But here’s a handy breakdown from Alexa: 50 percent of the money you take home should go toward essentials like rent/mortgage, groceries and transportation. Twenty percent should be put toward your future: paying down debt, or saving for retirement, vacation or the car you want to buy. The last 30 percent is for your lifestyle choices: shopping, dining and the like.
Start a freedom fund
When LearnVest.com received national attention for its mission, Alexa decided to drop out of Harvard Business School to launch the company — something she says she never could have done without her “freedom fund.” Your emergency savings account should be reserved for just that type of situation: Chasing down a great opportunity, walking out of a job that you hate or any unforeseen health or life issues. The goal is to have six to nine months of your life’s expenses saved in your freedom fund.
Save early for retirement
We know, “Boo… boring!” But instead of thinking of it as retirement savings, think of it as a “fun-after-I’m-done-working-my-life-away savings.” That changes the outlook entirely, doesn’t it? What kind of life do you want to live in your golden years? Start saving now! Look into options for 401(k) or Individual Retirement Accounts (IRAs). The earlier you start, the more money you’ll have in the future.
Hospital bills after a major medical crisis are one of the top ways people get into debt. Protect yourself by purchasing health insurance. It will save you money in the long run, says Alexa. Besides health insurance, purchase protection plans for your home, car and even business equipment if you are self-employed. Don’t gamble with your well-being!
Working with a financial planner can help you pay off debt faster, set realistic financial goals and create an easy-to-follow road map to reach those goals. Whether it’s a personal banker, accountant or one of LearnVest’s money management experts, it’s an investment to consider.