financial planning Archives

Build Up Your Financial Security In Uncertain Times

[This post is written by Derek from Creating A Passive Income. His goal is to explore every single passive income source there is and evaluate their effectiveness and revenue. If you’re interested in extra income, be sure to check out his site.]

There is a common piece of advice going around between parents and students. “Go to school, find a safe, secure job with good benefits, and you’ll retire well.” Let me be the first to tell you, this advice is terrible.

In our world today, there are fewer jobs than there are people, and employee turnover is higher than ever before. If you make a mistake or if your salary exceeds what is typical for your position, you might very well be on the chopping block. You might have your college degree, but guess what, so does everyone else.

The Typical Response for Financial Security

Occasionally, things just don’t work out with employment. It might not even have been your fault. The decline of the economy, the struggling sales of your company, or a transfer of ownership could be the cause of your job displacement. Whatever the case may be, you should have a financial plan in place so that you’re protected against total bankruptcy.

Once again, there’s some common advice out there – “To protect yourself from financial devastation after a job loss, you must have an emergency fund with funds equivalent to 6 months worth of expenses.” While I do condone an emergency fund, this alone will not protect you against complete financial failure.

After all, what if you just can’t find a job until month number 8? What happens then? You load up the credit cards? I hope not. The problem with setting aside a static stash of cash is that it is not regenerative. If you keep pulling money out and no more money gets put in, it WILL run out!

photo credit: Stuart Miles

The Best From of Financial Security

In these economic times, one really has no sense of security in a typical job. I’ve seen it too many times – people proclaim that no one can do what they do and that they’re too valuable to get rid of. And then….they get the boot….

Rather than depend only on an emergency fund for that potential job loss, I suggest that you focus on two more aspects of financial security.

1) Live well below your means

2) Build a residual cash flow

Live Well Below Your Means

My wife and I both work and we make a point to live off only one of our incomes. That way, if one of us loses a job (it’s happened before), we’re still completely fine financially. Maybe you can’t bring your expenses down to half of what you’re used to, but make an effort to reduce them and you’ll feel much more secure in the event that a job is lost.

Build a Residual Cash Flow

Instead of having just one or two incomes, why not go for three or four? That way, if one of your jobs says “see-ya”, it won’t be that big of a deal. My wife and I both have full-time jobs, plus she does photography on the side and I earn quite a bit of money through various passive income ventures. Now this is a true set-up for financial security, wouldn’t you say?

Perhaps you’re strapped for time and cannot possibly start another venture. If this is the case, then at least have some potential income options written down. You don’t want to lose your job and have no possible income sources. This is how you deplete your emergency savings in record time and make friends with the repo men…

Have you set up an emergency fund in the event of a job loss? Have you done anything more?

article photo by cooldesign

Financial Tips For Living With Friends Or Relatives

By Khaleef Crumbley

Living with friends or living with relatives can be a great help, when you run info financial trouble (especially when you are trying to pay off debt). However, if certain financial details aren’t agreed upon in the beginning, you can run into an extremely stressful situation, which may threaten to ruin the relationship.

Here are three major financial concerns, which should be addressed before you consider living with friends to be a viable option. These items should be important to both the one in need, as well as the one extending the help.

How Long Will You Need To Stay?

The first thing that needs to be worked out is how long you plan to live with your friends or relatives. Whether it’s for a few weeks or six months, you should be able to give them an estimate on how long you will need to stay with them.

Think about it…if your “host” thinks that you are only staying for a couple of months in order to save up for, and find an apartment, they will handle things in a certain way. However, if you actually plan to say there until you go back to school to finish a degree – and you’re only a sophomore – then that might change things a tiny bit!

Living With Friends Calendar — photo by Renjith Krishnan

If you need to stay for a year while you finish a degree or training program, or even if you are just trying to stabilize yourself while you get out of debt, state that from the beginning so that there will be no misunderstandings down the road.

Of course, you can’t always be sure of what will happen in the future, but, it is still extremely important that you both be on the same page with this.

If you feel that you will need to stay longer than you originally estimated, make that known as soon as possible. Just be sure that you are always keeping your host in the loop whenever your situation changes.

How To Split Up The Bills When Living With Friends

This is probably the most important conversation that you can have with your future host (because they are probably wondering, how will this affect my finances). There are a couple of reasons why this is so important:

First, if you simply pay what you think is a fair amount, then it can lead to negative perceptions and resentment. If you pay too little, it can make your host feel as though you are simply taking advantage of them, and that you really do not appreciate their help!

For the entire time that you are living with friends, they may resent every time you spend money – no matter how little it is. If you are throwing them $300/month, and then go out and buy an iPad 2 or Kindle, they may have a serious problem with that!

However, if you sit down with them and agree on a fair amount for you to pay, then they may not mind as much when you go out and buy a new laptop (although, that may not be wise if you are there because you are in financial distress and trying to pay off debt)!

The second reason why you need to come to an agreement about who pays what is because your presence will increase the household bills! You are sucking up all of their electricity, heat, cooking gas, water, and other utilities, and you need to be mindful of that!

You should sit down with your host and decide how you want to break up the living expenses before you move in. You may decide to pay for all of the utilities, while your host pays the rent/mortgage entirely. Another option would be to simply pay them a certain amount for rent each month.

Of course, you can decide on a myriad of combinations – you pay gas/electric and buy food, while they pay cable and rent, for instance – but the point is to avoid having any misunderstandings or bad feelings at some point in the future! It would be a good idea to write out an agreement with these details included – simply for clarity.

Discuss Your Financial Plans

I think this one can be optional, depending on the relationship. When living with friends or relatives, it may be extremely helpful for you to discuss your financial plans with your host. If you need to funnel all of your extra money into student loan repayments, or any other category, be sure to make that clear – especially when discussing how to split up the bills.

This can help to avoid any misunderstandings or resentment toward how you handle your money while living there. Also, if they are going to allow you to stay in their home for free, it would be great to show them that your plans include paying them back once you get on your feet!

Remember that communication is key in situations like this! Living with friends or even living with relatives can cause a lot of unspoken problems and tension, and you need to do everything in your power to prevent this from happening!

photo by AR Mclin

Reader Questions

Have you ever had to live with relatives or friends due to a bad financial situation?
Have you ever had to take someone in as a result of bankruptcy or debt (or any other misfortune)?
If you were to be on either side of this arrangement, what other financial issues would you discuss?

Why Financial Literacy Is So Important

By guest

[The following is a guest post on behalf of Advisor World on the topic of financial literacy.]

How Important Is Your Financial Literacy?

Making informed financial decisions can be difficult. You have monthly bills to pay, and you might wonder where the money is going to come from. Most Americans have no idea how to control their finances. Therefore, it helps to become educated on how to better manage your finances.

What is Financial Literacy?

In order for you to be financial literate, you need to know how to deal with credit (and take advantage of credit card benefits). You should be aware of the process of saving money, and you must know how to budget your finances. You need to have a plan for how you are spending your money.

April Is Financial Literacy Month

President Obama has announced that April is financial literacy month. Financial literacy is the capability to comprehend basic economic provisions and conceptions related to your family or business. The White House wants to help Americans better understand their personal finances, so they are trying to help citizens become financially literate.

Ways To Get Started In Becoming Financially Literate

Read: Find information in books, magazines, and newspapers. Become skilled in the world of finance.
Be willing to make changes: You must be flexible. You cannot expect to spend money frivolously.
Be patient: You cannot become financially literate overnight. It takes time to get a grip on your finances.
Take a class: There are investing and financial planning classes that are offered. Check in your community to see what financial classes that you can take.
Get advice from other people: If you know someone that seems very financial literate, ask for their advice.
Look for help online: There are many online forums where you can discuss financial decisions.
Quit making excuses: Don’t complain about not having enough money. In order to manage your money effectively, you need to change your attitude and be positive.

Study Your Paycheck

Your education and job have a huge impact on your income. Therefore, when receiving your paycheck, you should know the difference between your gross and net earnings. Be aware of what you are actually bringing home.

Plan A Budget

After realizing how much money you are actually making, then you should plan a budget. Keep your checkbook balanced, so you can keep track of your money. Know exactly what you are spending, and set your goals accordingly.

Loans

You should not get a loan or borrow money unless you know that you can pay it back. You should not charge unnecessary purchases on your credit card. Interest can really add up, so keep your credit card balances low.

Save Money For Emergencies

You need to also save money each month. Sometimes, you might encounter emergency expenses, and having extra money available will keep you from having to take out a loan or put it on your credit card. Your emergency fund should cover 3 to 6 months of living expenses.

Know Your Credit Score

It is a wise decision to know your credit score. You can get a free copy of your credit report annually. You can keep track of your credit, so you can make sure it is accurate and up to date.

Being financially literate can help you secure the financial future that you deserve. You should make good financial decisions so that you can use your money wisely.

Photo by Salvatore Vuono