Get Back To The Blocking And Tackling Basics of Personal Finance

by Hank Coleman

football-block-tackleWhen things are not going well on the gridiron, many of the football team’s troubles can be traced back to a poor performance of the basics, the fundaments of the game.  In football, the basic building blocks of the sport are blocking and tackling.  Everything after that is a direct result of how well you perform those basic attributes of the game.  The same can be said for missions that the United States Army trains for.  When an infantry unit is having trouble with a complex mission, a lot of its troubles are usually the direct result of poor marksmanship, land navigation, communication skills, or some other basic military task that are vital building blocks of the larger mission.

The same can be said for personal finance and your money.  You need to have the blocking and tackling basic skills for your money down cold before you can move on to the more complex money issues and concepts.  How can you want to invest in gold or options trading when you still have $10,000 in credit card debt or do not understand the difference between a 401-k and a Roth IRA retirement plans?  You need to know the basics of money.

So, what are the basics of personal finance?

Spend Less Than You Earn.  This is the most important financial lesson to realize, and it usually takes years for us all to learn.  But, it is one that will change our lives for the greater good…more so than any other if we had learned it from early.  The average credit card debt per household was $8,329 at the end of 2008.  The longer you pay credit card companies and other consumer lenders 18% interest or more, the more difficult it will be to reach your financial goals such as retirement, college education, or other key life events.  For each year that you miss out on investing for your financial goals, you lose thousands in compounding interest.

Make Bill Paying Automatic.  I accidently forget to pay my electric and internet bills a couple of months ago.  I did not realize it until the next month’s bill came in the mail and the balance was double and included late fees.  I do not know why I didn’t have them paid online automatically, but I quickly fixed that problem.  Paying your bills automatically and managing your bank accounts online will help you keep your credit score in pristine shape and allow you to avoid late payment fees.  Making as many financial aspects of your life as automatic as possible will enable you to spend less money and save more.  It is all tied together.  When investments and bill payments leave your account without your input and are transparent to you, it was like the money was never even in the account to start with.  It was never missed.  If it is not missed, it will be easy to keep investing and saving or paying down debt with that money every month on autopilot.

Have A Budget.  Whether you believe in a firm, strict monthly budget or a loose guide budget type of structure, you cannot accomplish all of your financial goals and dreams without a game plan.  Your monthly budget is that plan, and you need one.  In order to get a handle on your money and how to make it work best for you and your investments, you need to know where all of your income is going out of your account as expenses.  How do you know if you are winning, spending too much, saving enough, have leaks in your accounts, etc. if you do not have a budget written down on paper? 

While these concepts may seem overly simple to a lot of readers, they are still not being done enough by most people.  Knowing these money basics and practicing the simple aspects of personal finance will allow you to build better investments, a larger nest egg, and higher returning portfolio.  Doing the simple things right will help you transition into a more complex financial system.

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