As you may know, Eric Tyson is a prolific writer and personal finance columnist. We have a copy of his book Personal Finance For Dummies, and have found it consistently useful for several years. Among other things, Tyson gives the following five points of advice:
1) Prepare for Lifes Changes: The more you live within your means, build up a cushion of emergency savings and keep your expenses low, the better off you will be financially and emotionally when your life changes. An emergency fund of three two six months is good for most people.
2) Read Publications That Have High Quality Standards and that Aren’t Afraid to Take a Stand to Recommend Whats In Your Best Interest. In this case, you should probably take publications by brokerage companies with a grain of salt. Skepticism is required especially in publications advertising their in-house mutual fund’s performance. Very often the advertisement will select years in which the fund did well, but ignore years where it lost money. If you took the advertising at face value, you would get a distorted picture of the fund’s actual performance. Since your money is on the line, you should know what you’re getting into.
3) Prioritize Your Financial Goals and Start Working Towards Them: This is good advice, but I’d go further to say your goals should be measurable and achievable.
Regarding Measurement. It makes sense to avoid vaguely stated goals like “financial freedom”, because its hard to know when you’ve achieved “financial freedom”. – It simply means different things to different people. For a homeless person, it might mean having a job. For a family of four it might mean building up an emergency fund. Instead, try to put your goals in a metric that helps you to know if you achieved your goal or not. For example, your goal might be to “achieve net worth of $100,000” or “buy 9 savings bonds”. In both of these cases, you know if you made the goal or not. That is, either you bought the 9 bonds or you didn’t – its not subject to interpretation.
About Achievability: You should be able to reasonably meet or surpass your goal. For example, lets say you set a goal of becoming a millionaire in 1 year, but you only have 20 dollars in your pocket. Unless you are Warren Buffett, the chances of meeting your goal are not very good given that all you’ve got it is 20 bucks. When you make unachievable goals you are setting yourself up for failure. Don’t do that.
4) Hire Yourself First. Tyson says you are the best financial person you can hire. Amen. It never makes sense to abdicate control of your finances to a financial manager. Instead, it is probably best to work in partnership with them.
5) Invest in Yourself and Others. Invest in your education, your health, and your relationships with family and friends. Personally, I’m a bit of nerd when it comes to investing, but I also find it very rewarding to spend time with friends and family. In fact, the older I get, the more family becomes important. So, Tyson is right on with this final point as well.
Hope some of this helps.
For more great Dinks articles, read these: