The Rules Of Personal Finance

Personal finance refers to the financial decisions which an individual or a family unit is required to make in order to obtain, budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.

In this article, we shall examine the basic rules of Personal Finance that will guide in making financial decisions.

Live Below Your Income

This is the most important rule of all. Any person desirous of achieving financial success must develop a culture of spending less than he earns. This can be achieved by working on either sides of income and expenditure. Either we work to increase our income or we work to reduce our expenses or both. As we work hard on either spending less or earning more, our disposable income will increase. In turn, the later will accelerate our ability to achieve our financial dreams.

Enhance Your Income

As noted above, it is important that we work hard at enhancing our income as a strategy for increasing our disposable income. As people who are working hard at achieving a financially stable life, we must have a clear strategy of improving our income in the short and the long term.

Above can be achieved through getting a better education, establishing streams of passive income, starting a side business, working hard at our current job and other related efforts. As we move from one stage in life to another, our financial obligations will increase. Therefore, it is important that we towards increasing our income in the same progression.

Live a Frugal Lifestyle

Like many other rules in Personal Finance, this rule derives from the rule of living below your income. Not that we really have much choice about living below our income but in credit driven economies, it is very easy for our personal finance to get out of control as a result of borrowings.

Living a frugal life does not mean living a miserable life. Instead, it means living within your means thereby ensuring that you are in control of your finances and not the creditors. It is a deliberate and conscious effort to live within your income with a view to creating an enabling environment for wealth accumulation. A frugal lifestyle enables us to go beyond immediate gratification to having the big picture in mind.

This habit urges us to save as much as possible without making ourselves miserable. It enables us to avoid regrettable expenditures by applying the ten seconds rule. This rule says that every time we want to make a purchase, we should spend ten seconds to ask ourselves if we really need what we are about to purchase. Very often, this simple rule will point us in the direction of spending less money.

Learning to Manage Money

Having gone through the above steps, it is very likely that you will begin to have an excess of income over expenditure. The savings so accumulated is your ticket to financial freedom. At this point, you must learn to channel the excess funds into profitable investments. Money begins to work for you and not against you. As this stage, you must also begin to know the difference between asset and liability. Invest more in assets and pay off your liabilities.

Be in Control

Personal Finance is not about being rich, it is about being free. Freedom from debt. Freedom from stress and worries. It's about being in control of your finances. And so, the final rule is be in control.

In conclusion, most people spend most of their lives earning money but rarely spend enough time planning the efficient use of same. This leads to a lot of financial regrets. The result is that at age 65, most people are flat broke.

It is therefore very important that we take the issue of Personal Finance very seriously. Our financial well-being is worth some time and effort. If we observe the above rules, it would lead to fuller and happier life.

Getting The Best Refinance Deal

Now is the best time to think about refinancing your mortgage. The rates are currently at an all time low and our government is also working on new ways to help homeowners save even more money on their current mortgage plan. And while it is slow-going, our nation's economy, as well as the unemployment rate, is both showing signs of improvement which is always good news for the housing market and mortgage rates. However while this is always good news when it comes to the world of refinancing, being able to lock in a good deal can be very challenging for some homeowners.

The reason why this can be such a challenge for some individuals is because low home appraisals or strict lending standards can cause some issues when it comes to allowing some homeowners to refinance. Even if a person has great credit and assets to fall back on, they can still have a difficult time getting a mortgage refinanced since banks have been holding back on lending.

There is still good news to be had out there if you are a buyer or refinancer, you do have power when it comes to your mortgage. By making improvements to their current credit situation and learning more about all of the new government programs for homeowners that are available, they can greatly improve their chances of getting the refinance deal that they have hoped for.

These days one of the most promising details when it comes to refinancing is the low interest rates. The current average interest rate for a 30-year fixed rate mortgage is right at 3.84% is lower than the national average in March at 4.22% and is the lowest in 60 years seen by the housing market.

If you are a homeowner with an interest rate above 4.5% and have purchased your home before May 2009, you may be eligible to refinance with better terms. The recent drop in interest rates has caused there to be a stir in potential borrowers all over the nation. It has been said that over 20 million United States homeowners are currently paying a refinance rate of at least 5% or more while around 12 million homeowners are paying anywhere from 4% to 5%.

While these new rates mean relief for many homeowners, it isn't the case for everyone. There are many people who are unable to refinance because they currently owe more on their homes than the property is actually worth. However relief may be in sight for these individuals as many national banks are now required to refinance to certain borrowers who are in the same type of situation as a part of a $25 billion dollar settlement set forth by the government. This settlement is part of an investigation that is looking into questionable foreclosure practices in our country.

In order to qualify for this new government program, homeowners will need to be current with their mortgage and already have a loan through one of the five banks that is involved in this settlement program. These banks include Bank of America, Citigroup, J.P. Morgan Chase, Ally Financial and Wells Fargo.

Financially Surviving Divorce

In 1999 I took the Certified Divorce Financial Analyst (CDFA) course and now realize the full potential. Divorce is an extremely emotional time and I believe it is extremely important to have someone help you with the financial aspects of divorce.

There are four basic things that you will need to survive a divorce financially: a place to live, little or no debt, retirement assets, and liquid money. You should strive for a balance of each of these. You need a mix of each of these categories, not an abundance of one and none of the others.

A Place to Live: In 1997, the tax code changed relating to home ownership. A married couple is now able to exclude up to $500,000 of gains, and a single person is able to exclude up to $250,000 of gains on the sale of their home as long as you have lived in the home for two out of the last five years.

Depending on the divorce, it may be advantageous for one spouse to take the home, while in another situation it could be a disadvantage for the spouse to take the home. You should understand how your divorce settlement will affect you now, as well as in five, ten, fifteen and twenty years from now. A house is not a liquid asset and if you look historically at the stock market, a house may have less appreciation potential compared with money set aside for retirement. This is where it is very important to establish a financial plan.

Little or No Debt: You should understand what the cost of credit means. Because there is a high cost to having debt, you need to know the difference between good debt and bad debt. You should be careful when it comes to using credit to protect your assets and your future because we live in a negative savings society. Contact credit bureaus to get a copy of your credit report. If there are credit cards that have a zero balance, call and cancel those cards.

As part of a divorce, remember that the creditor wants the debt paid regardless of the situation. So, if your spouse takes a credit card with your name on it and does not pay that debt, the creditor will come after you.

Retirement Assets: When you are looking at retirement assets there are many different vehicles in which you can save money for retirement. Make sure that you do not forget some accounts and leave money on the table.

If you receive retirement assets from your spouse's 401(k) plan you may need a QDRO (Qualified Domestic Relations Order) to separate those assets. The QDRO is a legal document that is separate from your divorce decree. This legal document is sent to the benefits department of the 401(k) plan provider to instruct them how the assets should be divided. Make sure the QDRO is written correctly BEFORE the divorce is final to ensure that you receive your retirement assets.

Some benefit plans cannot be divided. In this case, you want to look at other assets of marriage and receive those instead. For example, if a pension cannot be divided, take more of the 401(k) assets of the other spouse.

If you receive retirement assets from your spouse's IRA, you will need a copy of your divorce decree and a few other financial forms to separate those assets. With the 401(k) and IRA, you should change the account into your name and roll the assets into another IRA account. This process is known as a "direct rollover." This is another area where it is important to have a financial plan in place so you can realize the foundation you are setting for your financial future.

Liquid Money: There are three different general phases of the divorce process: The beginning of the divorce, the middle of the divorce, and after the divorce. In each of these states, your budget may be different, so you should make sure that you have liquid money available at all times.

In the beginning, you will need liquid money for the retainer to hire an attorney. You should consider putting this liquid money in a money market account rather than a savings or checking account. This is a vehicle where you are able to earn more interest on your money.

Make sure you understand what a money market account is and what it can do for you. Make sure you understand the difference between assets, regardless of whether you are single, married, or divorced. Gather as much information as you can about your financial situation. Know where your money is. Find out as much information as you can on your own. It is always a good idea to have copies of statements and to start listing all of your assets and liabilities.