I started on my personal finance journey a few years ago. I remember it was such an exciting journey. This is a follow up to that post.
Overall I am gaining confidence in my money management skills and am on track with my goals. I have learned a few practical tips along the way that has helped me make better financial decisions.
Credit Cards:
I have learned the power and convenience of using these plastic cards. Being responsible and diligent is key to unlocking the full potential. I have find it is convenient to have all three Visa, MasterCard, and Amex.
I always use credit card for all purchases and use different ones for different credit categories. I optimize the cash back rewards, travel benefits, and fees to gain maximum value. I am slowly getting better at this.
There can be perks such as insurance on trips, purchases, and fraud protection not gained in paying with cash. Doing the math of which card provides what value and with how much annual fee can be extremely useful.
Credit Score:
Building a credit score is vital and by getting a credit card and using it wisely can set you up for financial good health. I always make my payments on time and use a about 0-30 % of the credit limit between all the cards.
It is important to understand how the credit score is calculated and the difference between hard and soft credit checks. Additionally getting your credit report annually and using free credit monitoring services will help you keep track of all activities.
Buying things:
- Big Ticket Items > $100 = Think about for a day or plan ahead before purchasing.
- Major Items >$1000 = How much long term value will this have in 3- 5 years?
- Food/Drinks – Treat yourself once in a while, try to be healthy
Buying experiences:
- Day events < $100 = 2-3 times a month
- Day events > $100 = Must be special and worth it
- Vacation – Think about difference between relaxing trip or busy sight seeing trip
Budgets:
I often had a tough time to sticking to a budget. I feel a more trend based approach is better. This starts with tracking every single last cent of your money. Using software such as excel, bank websites, and mint makes this much easier. Giving you an overall big picture of your money makes it much easier to see where you can spend or save more.
Savings:
My goal has always been to save 20-30% of my pay. Firstly by having an emergency fund of a month or two gives you a mental buffer to overcome unforeseen circumstances. Then by saving for certain goals gives you the foresight to see how much you may need in the future.
Investments:
Maximizing your tax free savings account is the goal first, then retirement savings, then any other investment vehicles such as taxable account, education savings, medical savings etc
Utilizing broad market index funds in those investment vehicles mentioned above is ideal as they are diversified and can be purchased from a online brokerage saving you fees. Look out for transaction fees and aim for a low MER of less than 0.75%.
Debt:
Ideally no debt should be the goal. Student, credit card, car debt should be payed off first due to high interest. Mortgage can be a calculated risk to pay off over long term if looking at inflation and compound interest.
Insurance:
This is a key one and I am still developing my knowledge base on this. I find it is best to combine policies when possible and always shop around. Home, auto, personal, life those are the main ones.
Taxes:
Optimizing tax incentives and understanding all your benefits is the key. Spending time reviewing deductions, tax brackets, and learned how your tax dollars are at work will give you a deeper satisfaction knowing you have done your part in optimizing this mandatory part of life.
As with anything in life, constant learning is key. I am looking forward to grow my personal finance knowledge base in the coming years. It takes a lot of effort understanding the the big picture and intricate details but you feel better about it each time.