Financial Planning for Beginners Video

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Financial Planning for Beginners Video

Personal finance covers a wide variety of money topics including budgeting, expenses, debt, saving, retirement and insurance among others. Understanding how each of these topics work together and affect each other is important for laying the groundwork for a solid financial foundation for you and your family.

Budgeting

At the very basic level of personal finance you are dealing with a budget; you make money and then you spend that money. Even if you haven’t created a detailed and written budget you continue to budget on a daily basis. When you are faced with spending money on something you think about it and realize that by spending that money you will not be able to spend that same money on something else.

Cutting Expenses

After you have created a budget you can begin to see where expenses may need to be reduced in order to meet your goals. For some people this means eating out less and for others it could mean getting rid of that extra vehicle. Whatever the case may be, everyone has an area or two where money can be saved by reducing some basic expenses.

Getting Out of Debt

Even after creating a sound budget and cutting unnecessary expenses you may still find yourself with lingering debt to get rid of. Financial leverage, or using credit and taking on debt by itself isn’t necessarily a bad thing but there are two kinds of debt: good debt and bad debt.

When you borrow money to purchase a home you are taking on a lot of debt, but lower interest rates and the purchase of an asset that can increase in value is an acceptable form of debt. On the other hand when you go to the mall and have yourself a shopping spree using your credit card with a 24% annual interest rate without paying it off in full right away is bad debt.

Getting out of debt doesn’t have to be difficult but it is essential in reaching a state of financial independence. The first thing to do when you find yourself in debt is to pay more than the minimum monthly payment. If you only pay the minimum each month it will often take decades to repay the debt and cost a small fortune in interest. Once you are paying more than the minimum you should look to lower your interest rate. High interest rates will make getting out from under the debt even more difficult.

Saving for Retirement

With fewer companies offering full pension plans and the uncertainty of Social Security it has become more important than ever to save and plan for your own retirement. Unfortunately many people feel that they simply don’t have enough money left over each month to save.

Retirement savings needs to become a priority instead of an afterthought. The Internal Revenue Service has made saving for retirement even more attractive with special tax-advantaged accounts such as employer 401(k) plans, individual retirement accounts and special retirement accounts for the self-employed. These allow for tax deductions, credits and even tax free earnings on retirement savings.

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