Monday, May 12, 2008

Organizing my personal finances

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In my blog reading journey, I came across a few sites that made me think hard on organizing and improving your personal financial situation.

If you are like me, one of the millions who are not 'rich', then you need to think of managing your financial situation.

[By rich, I mean those who don't need to worry what happens if they stop working or doing business or whatever for the next 3 months.]

We have to put food on the table, mortgage payments, credit card payments and other bills every month. While it is not a hand-to-mouth existence exactly, we are also not very well off in a job loss situation.

What about death of the wage earner? Funds for retirement? Emergencies? Let me describe what I do and am sure most of you will relate to it.

I coast from month-to-month, making impulse purchases to maintain a 'lifestyle'. To save tax, I opted for life insurance (more on this later), based on information from colleagues and friends. I also invested in some stocks, IPOs and MFs - again based on information from friends and the internet.

Net effect - we don't have a financial plan. We don't know if these investments will yield the benefits we expected. We don't really know if the total return will be sufficient for retirement - life expectancy is up, which means we will need money for a longer term, medical costs are rising with decreasing quality of life.

Its not a rosy picture and one which we seldom think of.

Solution: Financial planning.

Planning your finance means assessing your net worth, defining your financial goals and planning your investments to meet those goals. While it is best to meet with a Certified Financial Planner to do this well, there are a few things you could do for a start.

1. Spend less than you earn

2. Look for ways to earn more (legally, of course!)

3. Stop using credit cards for routine purchases

4. Stop or at least postpone purchase that you don't need

In the meantime, read these blogs to gain more understanding - www.getrichslowly.com, www.binarydollar.com

What about you? Have you been planning? Do you have any advice to share with us? Let us know in the comments. Ciao.

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