PF

Personal Finance, aka PF: Take Control Of Your Financial Life

There are so many ways to improve one’s life. One of them is associated to PF, which in this case doesn’t mean personal foul. Although, the PF I’m talking about could surely be considered that way by the world’s lenders, credit card companies, big-ticket retail, and “The Man”. Instead, PF stands for Personal Finance. It’s all about managing your money and it’s the sure way to FIRE, which in the personal finance world is the acronym for Financial Independence Retire Early. However, PF isn’t limited to those who wish to retire early or achieve financial independence. So many of us suffer with financial stress. That’s great for the corporate world because it guarantees a financially desperate working class. Sorry, I digress…. But life doesn’t have to be that way.

Being knowledgeable about personal finance and then developing good PF habits can provide a level of freedom that few in this consumerist world will ever enjoy. Although I tend to look at PF through an early retirement lens, there are numerous PF related ideas, hacks, and tips that could be more broadly aligned with making personal financial gains. It can give us the financial wins that result in positive lifestyle changes and much less money related stress. Below is a personal finance overview.

Personal Finance, aka PF

PF – Personal Finance: What It Covers

PF covers everything that is associated to managing your money. We’re talking about budgeting, saving, and investing. But it doesn’t end there. It’s also includes tax planning, every kind of needed insurance, banking, debt, and financial planning for the future. Future things like retirement, your children’s education, and I will go as far as to include your future health.

We should educate ourselves about all the personal finance areas that apply to us and setting goals to be met. Everyone’s situation is as different as there are different people and so it goes for one’s personal finance goals. We need to become PF literate by picking up new ideas and tips that will work for us based on our own unique situation. We all have unique income, required living cost, and desired goals. Having such knowledge allows us to set a good plan and increase our odds for making better financial decisions and avoid making big financial mistakes.

The PF – Personal Finance Steps To Take

* Set a Realistic and Sustainable Budget

Budgets seem to fail as much as diets do. A lot! The early excitement of setting a goal can fade. It’s important to be realistic no matter how aggressive your financial goals are. The first step is to know where your money goes. Catalog your total essential living costs like mortgage/rent, utilities, food/hygiene, taxes, minimum debt payments, and insurances. This is your bare minimum to survive if everything goes right and it never does for long. So it’s important to also include your miscellaneous expenses within your essential expenses that are paid for. Like medical co-pays, home and auto maintenance, etc.

Next catalog your non-essential expenses. This includes things like satellite or cable TV plan, an RV, internet plan, cell plan, extra car, vacations, an ungrateful relative living rent-free in your basement, etc.

Finally, look at what you are saving on a monthly basis for your future goals. Whether that is debt payments above minimum, retirement, child’s education fund, emergency fund, etc.

That covers where your money is going. Now inventory where your money is coming in from and how much there is to work with. Salary, bonuses, commissions, interest/dividends, etc.

Time to figure out your budget!

Start by using the well documented 50/30/20 budget rule. It divides your spending habits into the 3 categories with specific percentages. Based on your income, essential expenses make up 50% of your budgetary spending. Nonessential expenses make up 30% of the budget, and future goals make up the rest, or 20%. Having the goal of FIRE means that your budget percentage numbers may need to be flopped. Think instead 30/20/50.

If after plugging in your numbers from your current lifestyle doesn’t match to your desired budgeting percentages then you have to make some decisions. Find ways to increase income, cut from your lifestyle costs, or do both. Good personal finance means valuing future goals over non-essential spending. Even if income-to-cost doesn’t initially allow you to meet your budget goals, cut what you can, add income where you can, and incrementally move toward your PF desires.

* Maintain Your Credit Score

It’s important to stay on top of your credit score. There are many free credit score check sites online. The 3 main credit score companies are Experian, TransUnion, and Equifax. Many states allow for one free credit check a year. Set a schedule to pull your report every 4 months by alternating between these companies and repeat yearly. Your credit rating determines the interest rates you have to pay or whether you will be able to get a loan when in a pinch. But not just that, it also comes into play for what you will pay for auto insurance or whether you’re hired for certain opportunities. You can also catch identity theft and begin needed action before it drags your credit score down.

Since this score is based on your credit history, always pay credit card and loan payments on time and limit your borrowing so not to push beyond acceptable credit-to-debt ratios.

If you’re not familiar with credit scores, they are calculated between 300 and 850.

  • 720 = good credit
  • 650 = average credit
  • 600 or less = poor
* Start An Emergency Fund

Every PF devotee should have an emergency fund to get through life’s many possible hits. Like the loss of a job or having a medical issue that either comes with a huge bill or less income because of being unable to work. Set aside enough cash in an easily accessible account like a savings or money market account to cover 3 to 6 months of your living expenses. This should be a big part if not all of your 20% future goals budget until you feel you are fully “emergency” funded. Once this is met you then get to direct your money to other future goals in your budget.

* Get Rid of Non-Mortgage Debt

We all end up borrowing money for something in our lives. Good personal finance means limiting our use of debt and hopefully eliminating debt altogether. Making minimum loan or credit card payments only financially enslaves us. Develop a debt repayment plan within your budget and get rid of it all. Then only use credit cards when you know you can fully pay off the monthly balance each month when it comes. By using rewards cards, when you pay your balance in full each month you never pay a cent in interest and instead the bank pays you.

* Have Adequate Insurance

There is more to insurance than the monthly cost. Sometimes that’s all we focus on. Look at co-pays, deductibles, and maximum coverage amounts. Whether it’s health, auto, homeowners, renters, or life insurance, do careful risk analysis so that you not only have adequate insurance for your needs but that you also are not paying for too much insurance. It also pays to shop around every year when renewals come. You can be surprised what you might save by not blindly accepting your current provider’s offer.

* Save For Your Eventual Retirement

The idea of setting aside money for retirement isn’t the biggest priority for people when they are young. But it should. That’s because the earlier we start saving for retirement the easier it is to build a good-sized savings portfolio. Time is an ally and the longer we put it off the more money and effort that’s needed later in life to reach retirement savings goals.

The easiest thing to do: Contribute to your employer’s 401K plan. Especially if they offer any kind of match contribution. Even if you are concentrating on building your emergency fund and debt elimination, you should contribute at least up to your company’s 401K match amount. If you are maximizing your 401K contribution amount or don’t have one where you work then the other popular retirement savings vehicle is the IRA.

Both the 401K and IRA come with favorable tax benefits. There is also the pre-taxed option of Roth 401K and IRA to consider. Invest in low-cost stock and bond funds within your 401K or IRA. Make sure to have an appropriate diversified investment strategy aligned with your risk tolerance and your age.  

* Become Tax Savvy

Understand your yearly tax obligation and only have enough withheld from your salary to cover it. Don’t overpay for a big tax refund at filing time. It is money smart to instead save and invest instead of giving the government an interest free loan. Adjust your W4 to be closer to breakeven or even owe just a little at tax filing time.

* Include Fun In Your Budget

The trick to successful PF is creating a lifestyle that both maximizes the use of our money but doing it without feeling like we live a deprived life. Allowing for fun, even if we have to set aside and spend a little money to do it, helps us create a sustainable budget and meet our long-term goals. Just look for reasonable ways to include fun at a lower cost. Not all travel is expensive. Nor sports, eating out, concerts, you name it. There are always lower cost alternatives if we look for them and they are just as fun if not more because we know we aren’t blowing our budget to have it. 

* Have The Right Mindset

Look at things strategically and spend with purpose. It can sometimes feel like a nuisance to take time to find the best deals, put off a purchase until a sale, or delay a vacation, etc., and sometimes we won’t or can’t. PF is an evolution of how we think. It takes time to erase years of consumer economic conditioning where everything is available now for X-amount a month whether you can afford it or really need it. PF simply has us look at our finances and finally say we will live below our means and save for our future. It sure beats worrying about making ends meet.


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