Personal Finance Basics: An Indispensable Guide

Personal finance basics covers all the decisions we make with our money throughout our life and basics of personal finance involves easily manageable steps.

Creating a Budget

Budgeting is the very foundation of personal finance and it is all about making a plan for our precious money, every dollar coming in and every dollar going out. Listing income is the first basic step of personal finance and it includes take home pay and side hustle money. Planning for food, utilities, accommodation and transportation are vital aspects of personal finance basics. Tracking our expenses is an important component of personal finance of the contemporary era. We should essentially track the money that goes in or out of our bank account and it is a good idea to keep away from overspending. Personal finance experts recommend creating budgets for each and every month.

Investors should save for large purchases or semi-annual expenses and a sinking fund is the splendid way to save up for large as well as semi-annual expenses. Building an emergency fund is essential and it is ideal to begin with $1000 starter fund. A typical investor will have to save enough to cover 3-6 months of emergency expenses. It is to be kept in mind that emergency fund is not a long term investment and it needs to be ready when we need it. Emergency fund can be put in a money market account and it can be deposited by writing a cheque or going to an ATM.

Saving for Retirement

Having a fully funded emergency fund guarantees personal finance security and retirement investment is not so complicated as many of us may think. Investing in 401K or 403B is a splendid retirement investing idea and individuals with IRA can open Roth IRA too. Roth IRA gives big tax advantage and it allow investing $6500 in 2023 and our money will spread across growth mutual funds, growth and income mutual funds, aggressive growth funds and international growth funds in 401K and Roth IRA. Diversification is very important as far as personal finance basics are concerned.

Getting the Right Insurance

The list of must have insurance includes term life insurance, auto insurance, homeowner’s insurance, health insurance, long term disability insurance, long term care insurance, identity theft protection, and umbrella insurance. Everyone of us need a 15- or 20-year term life insurance policy and auto insurance includes liability, collision and comprehensive. It is a great idea to speak to an independent insurance agent for getting the best insurance rates. Typical homeowners insurance includes dwelling coverage, flood coverage and earthquake coverage. Renters insurance will help us replace our stuff if it is lost in fire, burglary or other disaster.

Investors can consider a high deductible health insurance plan combined with a Health Savings Account. Long term disability insurance will help customers replace their income if they can no longer work because of sickness or injury. Typical long term disability insurance is about 60-70% of our income and short term disability insurance is not at all recommended. It is an excellent idea to get long term care insurance that covers in-home care and identity theft protection is an absolute must. Identity theft protection includes both protection and recovery services.