Finance 101

Developing a financial strategy can be a daunting task. It feels like there are a million factors to consider, it’s wrought with un­certainty, and the things you don’t know always feel like they outweigh the things you do. Sadly, that can lead to people ignor­ing the importance of financial preparation because it seems difficult. Let’s get this out of the way: There are a lot of financial concepts that are, indeed, complicated. But the basics of financial strategy — the Finance 101, so to speak — are much, much simpler than some people think. So, today, we are going to walk through a Personal Finance 101 guide as outlined by "thebal­ance.com". First, financial strategy is an umbrella term that covers a wide range of money topics, but it helps to recognize that they all work together to help you build a financial foundation. Among the things that fall under this umbrella are budgeting, expenses, debt, saving, retirement and insurance. There are five key components of personal finance that you can tackle to feel less overwhelmed when you try to develop a strate­gy. Start with budgeting. This is the most basic element of personal finance and most of us have some experience with budgeting. What we don’t always do is spell it out as well as we should. A budget, or a spending plan, can function as a road map for what you should do with your money each month. The most-simple budgets include a list of what money is coming in and what money is going out. The more detailed you make your budget, the more thoughtful you will be as you make day-to-day decisions that impact your finances. It establishes a clear picture of your money. How much do you have? What do you spend it on? How much is left over when you’re done? Can you put some in an emergency fund, or pay down debt? These are questions that sometimes people don’t like the answers to — and that’s exactly why they are so important to ask. A related, second component of Finance 101 is cutting expenses. Your budget gives you an idea of where your money is going, and, in turn, an idea of where you can cut some expenses. That might mean eliminating a series of small things, or a smaller number of big things. Regardless of how you do it, cutting expenses can potentially help your financial situation. Even better, it can help you get out of debt, which is the third component of a basic personal finance strategy. After you’ve established a good, responsible budget and used your budget to help eliminate some of your unnecessary spending, you can try to pay down troublesome debt. Establishing credit and having some debt isn’t always a bad thing. But with credit card debt, for instance, if you only pay the minimum amount due, you can end up paying for years, thanks to interest and finance charges. Extra money from reduced expenses can help pay off high-interest debt more quickly. Now that we’ve covered some of the basics of personal finance, it’s time to move onto one of the bigger topics: saving for retire­ment. The importance of saving for retirement has grown in recent years, with fewer companies offering pension plans than ever before and Social Security remaining uncertain in the years to come. The unfortunate truth is that some people don’t save for retirement because they don’t think they can put enough money away to make an impact. Because of this, they end up costing themselves later in the life by missing out on the power of compounding interest. Fortunately, it’s never too late to start making retirement savings a priority. There are a number of tax-advantaged tools that can help, including employer 401(k) plans, individual retirement accounts or IRAs, and tailored retirement account options for the self-employed. The last component of this high-level Finance 101 is life insurance. All the work you do to establish a financial foundation is for naught if you don’t protect it. Accidents, natural disasters or other unexpected circumstances can take a financial toll on you and your family if you’re not prepared. Life insurance, disability insurance and homeowners’ insurance may be necessary to help pre­pare for worst-case scenarios. Life insurance comes in a wide variety of types, whether it’s term life that covers a specific period or a permanent policy that stays with you forever.

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