Get a Financial Life

get a financial life book summary and review

Get your financial life in Order

Here we share a little bit on Get a Financial Life key reading point. If you can’t save money no matter how hard you try, you have something in common with most people, but you ought to change that as soon as possible.

Follow these seven basic laws to put your financial house in order:

  1. Get health insurance
    Talking about how to increase your financial security is pointless until you have health insurance because a single medical problem could bankrupt you. Health insurance must become your highest priority. If your company doesn’t offer it, buy it yourself. You can search online for information and quotes.
  2. Reduce your debt 
    The best way to start saving is to put every spare penny you have into reducing your high-interest debt. The interest rates on some loans are higher than the return you’d receive from investing the money. Credit-card interest rates are often remarkably high. Search the Web for credit card issuers who offer low rates.
  3. Start saving for retirement 
    The best time to start saving is when you’re young. Interest rates will really start working for you as you get older and accumulate principal. Take advantage of your employer’s 401(k) plan to sock away your money.
  4. Reduce your banking costs 
    Checking account and ATM fees can be costly. Some banks don’t charge these fees if you maintain a minimum balance.
  5. Build up a nest egg for emergencies 
    What would you do if you were suddenly laid off or experienced a personal setback? Before you invest any money, save enough to cover your living expenses for at least three months. Set up an automatic savings plan with your bank. The bank will automatically shift funds from your checking account into a savings or mutual fund account.
  6. Become an investor 
    Join a mutual fund pool to reduce your risk. Consider only no-load mutual funds, with low expenses. Bonds usually carry less risk than stocks, and they will help you diversify your investment portfolio.
  7. Reduce your taxes 
    Check for professional advice on how to reduce your payable taxes.

Getting a Grip

You do need to pay attention to your money.

First, write down your goals, such as owning a house or a new car, and figure out how much they’ll cost. Get a clear view of the financial mountain you’re trying to climb.

“Many people in my generation – those now in their 20s and 30s – do not expect to live as well as their parents.”

excerpt from Get a Financial Life

Next, complete a financial worksheet. List your income, other revenue sources and expenses. To get an accurate picture of your expenses, keep a spending diary for two weeks. Note even small expenses: You’ll be surprised at how quickly they add up.

This exercise may sound a bit dull, but it will help you itemize expenses realistically. Account for housing, furniture, tuition, car loans and other large expenses. Set up a filing system for your records and develop a consistent budget and bill-paying habits. Finance software such as Quicken can help you bring order out of chaos.

“The good news is that if you start paying attention to your finances today, you can develop some habits that will help you for the rest of your financial life.”

excerpt from Get a Financial Life

Finally, do what every corporation and every accountant in the world does: subtract expenses from income. If the result is a negative number, you must either cut back on your spending or earn more money – you’re living beyond your means.

The Rules of the Game

Follow these three basic rules as you wrestle with your finances:

  • ”The Debt Rule” – Your total debt, excluding your student loans and mortgage, should never exceed 20% of your annual pay.
  • ”The Housing Rule” – Limit spending on housing to about a third of your monthly take-home pay. If you live in a large city, you will probably need to live with roommates to obey this rule.
  • ”The Savings Rule” – Take saving as seriously as you do pay your bills. Save at least 10% of your take-home pay each month. If you’re really “hardcore,” you’ll put away an additional 5%.
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Get a Financial Life by Reducing Debt

Debt is like digging sand at the beach. You work furiously to dig out of the hole, but as you do, more and more sand seeps in; at best, the hole stays the same size. Although not everyone can take advantage of them, the two best ways to reduce your debt are:

  1. Pay it – If you have significant savings, you can pay off your high-interest debt. Of course, once you’ve completed that transaction, you won’t have much money left. That’s the bad news. The good news is that you will save much more than you could have earned in interest on your savings account. If you retire a big chunk of debt bearing a 16% interest rate, for example, you have effectively made money – you can’t get that amount of return if you invest the money.
  2. Refinance it – Refinance by transferring money from high-interest debts to low-interest ones. For example, apply for a low-interest credit card, and transfer the debt on your old, high-interest cards to the new account.

“In inflation-adjusted dollars, people 25 to 34 years old today still earn lower incomes on average than our counterparts in the 1970s.”

excerpt from Get a Financial Life

To avoid accumulating new debt, pay credit card bills as soon as they arrive, don’t miss payments and be sure you understand how your card issuer assesses interest. Pay off the entire balance each month. Don’t be shy about asking your card issuer for a better deal. The credit card business is very competitive, and your account is valuable.

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Get a Financial Life by Invest Wisely

Investing is not as difficult as you might think. You can start with mutual funds, which pool the money of thousands of people and invest it in a range of stocks, bonds and money-market funds. When you join such a pool, you reduce your risk. If you bought a few stocks, and the companies experienced setbacks, you would lose your investment. However, the job of the professionals who manage mutual funds is to make sure that their investors’ money is safe.

“Next to flossing, saving money in a retirement plan is the smartest habit to acquire when you’re young.”

excerpt from Get a Financial Life

Safety isn’t your only concern. If it were, you could just put your money in federally insured deposits and let it sit. However, because of inflation, your money would gradually lose value over time. In 50 years, it would purchase only a fraction of what it does today. Besides, the government assesses taxes on interest earnings. By the time you subtract taxes and inflation, you have to keep your money pretty busy just to stay even.

“Your goal should be to save at least three months’ worth of living expenses in a money market fund before you even think about more aggressive investments.”

excerpt from Get a Financial Life

To go beyond mutual funds, look into index funds. Index fund managers invest in almost every stock available in a particular index such as the S&P 500 or the Dow Jones Industrial Average. When you buy an index fund, you peg your investment to the overall performance of the stock market, which is heavily influenced by the economy.

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Author: Muhamad Aarif

A notorious book addict by night and an oil and gas executive by day. As Mark Twain said, "The man who doesn't read good books has no advantage over the man who can't read them." So, read, read, and read some more.

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