Many individuals and couples have used their own judgment in regard to various phases of their family finances. The financial climate of today has shown many just how inadequate their financial knowledge and actions have been to meet their daily responsibilities.

As a result of the current economy, tens of thousands of families now recognize the urgency and importance for them to learn all they can about money management. They have began seeking, reading, going to class, in an effort to gain some sound financial knowledge, enabling them to manage their own family finances well enough to get out of debt and maintain some economic independence. Many have taken the opportunity to attend workshops and classes held by banks and other financial institutions in cities throughout the country. It is there they hopefully have learned how necessary it is. In this day and age, for both men, women and especially couples need to understand how to handle their family finances properly.

In addition to making yourself more capable of managing your family finances, it is important to gain an better all-round understanding of the essentials of finance – of government and corporation finances too – and also of the economic factors which affect the nation’s system of capitalism and free enterprise.
It is these factors that govern your living standard as they govern the living standard of the whole nation.

For instance, a knowledge of the reason for inflation and higher taxes… and you will know that, as voters, you can influence both. A broad understanding of the financial and economic fields will bring to you new and interesting experiences, it will also unlock many of your hidden abilities which you will find valuable for everyday living and financial decision making.

What The Future Hold

Today’s world circumstances are evidence that the coming years – from here out – will make demands upon an individuals capacities in the realm of personal finance and related fields as never before. It is a serious situation because so few US citizens are ready to meet these demands – (maybe our education system has failed).

Who should shoulder this responsibility – the rich? Shouldn’t everyone play a part and shoulder their fair share with enough economic knowledge to help operate our nation’s economy. It is not in the best interest of our country’s welfare (how much in debt are we) for Americans to leave the entire responsibility of national leadership – Congress & the President.

It appears that many Americans apparently, have no realization of the need for a financial and economical education in the field of finance, government, and business. Think of this economic waste of your inherent talents, for many of us have a sound instinct regarding the value of things – right government, right legislation, right money management, and right use of public monies when you thoroughly inform yourselves about them. This talented gift is a good solid base upon which you can build any proficiency. A better financial education provides the ability to be used in purchasing, running a business, managing personal finances, investing and in various departments of government and business.

Getting a handle on your finances not only gives a guideline on what and where you can improve but it also can provide an overall boost of confidence. When you begin to whip your money into shape and “make it behave,” you can then begin to reach those once evasive money goals. In our ADD culture of people rushing around it is no wonder they handle their money the same way – quickly and without a plan. They jump into stocks and mutual funds because of a slick sales speech or a hot tip from a beer drinking buddy. The true “secret” to succeeding financially comes from educating yourself in the world of investing, managing debt, taxes and planning your estate. As you become more educated you will make better, more informed and calculated money choices.

Before making any decisions in your financial world which may appear to better or improve your position in life financially, you should “survey your flocks” and get a picture of where you are currently in the world of your personal finance. Putting pencil to paper can be a big eye-opener as it gives you a true picture of – How you are doing financially! You should have a clear picture of your assets (what you own), liabilities (what you owe) and your current net worth to see what steps you should take to meet those financial goals. This could be trimming debt, boosting saving, adding more to your retirement plan or flat out eating out less.

For most people buying a home will not only be the largest purchase in their lifetime but also their greatest asset. It is for this reason you should make a thorough review and checklist before buying a home. In fact, having a punch list the way a contractor would go through a house is a great idea.

When looking for a home where do you start in a neighborhood? For starters, main traffic arteries through better residential sections usually are good guides to follow in picking a home or building site. Lots close to highways, including those beyond the developed areas, likely have fairly stable values.

Zoning restrictions may change sharply as economic pressure develops in future years. Even if no one puts a glue factory on your street, you may unhappily discover that your neighborhood is losing its original residential character. So ask your public planning officials about the prospects.

Restrictions running with the property may cause unpleasant surprises unless you know about them when you buy. You may suppose they merely keep the neighbors from doing things like erecting unsightly storage sheds in their back yards. But they also may prevent you from fencing your garden to keep out the neighbor’s dog.

Think ahead about the house you are buying – 5 or 10 years ahead. If you have young children, the question of separate bedrooms will come up in due course. Are there likely to be elderly parents or other relatives sharing your home in the future? If so, a first floor bedroom and bath may be desirable.

The whole question of the livability of any house may be considered in terms of the family’s needs. Will it accommodate without friction the hobbies of the individual members, their need for privacy? Is a rec room or home theather a vital requirement?

Settle as many of these questions as you can in family discussions or in your own mind before you start looking at specific houses. It will save you time, perhaps save you from being talked into buying something that doesn’t really meet your needs.

For people who build their own houses, structural soundness is largely a question of good specifications and competent supervision to see that they are carried out. Buying an existing house, especially an older one, is a different matter.

The roof line, to take an obvious starting point, should not sag. Such a condition is difficult to correct. Don’t let anybody tell you it’s a minor matter.

The chimney is important. Some chimneys may be causing trouble. Only way to check on the chimney draft is to light a fire in the fireplace.

Gutters and downspouts should be checked carefully. What about termites? Stick a knife blade into suspected beams or joists. If the wood is powdery, buy some other house.

A floor drain in the basement is important. Lack of it sometimes betrays a careless or inferior builder. If the basement has an outside areaway, this should have a separate drain.

Basement leakage can be a major headache. Remember that it is very difficult to do waterproofing effectively from the inside. Wet patches on the foundation and basement walls are danger signs.

Heating systems may be convenient, but the is the furnace is efficient. You may have to check that with a heating specialist.

Water pressure is often a source of trouble in older houses. Turn on all the faucets in the house; then see if there is pressure enough in an upstairs faucet.

Overloaded electrical circuits are dangerous. Look at the fuse box. If larger fuses have been installed in order to accommodate more lights or appliances, the circuits are overloaded and there’s a risk of fire.

Picture windows are all the rage. Even expensive thermal glass does not counteract the tendency of cold air to flow off large glass areas. Moreover, big windows on the street side may drive you frantic, what with lack of privacy, and glare from headlights of passing automobiles.

Insulation of outside walls and roofs is fairly standard in the building of houses now. But insulating material that is pumped into wall spaces may settle. It generally is not as desirable as insulation that is nailed in place.

These are just a few of the many items to consider.

A carefully selected house financed with a mortgage can do three things for you. It can help you accumulate money and create a forced savings plan. A house can profit you over the years if you happen to own it during a period of economic growth, shortages or inflation. It is one of the few investments that can be used as well as held.

For most people, buying a house represents the largest financial commitment they will ever make. For this reason, every detail of the transaction is important.

The house should be affordable, sound, attractive, usable and marketable – it needs to have “good bones.”

Mortgages often run for 30 years so every fraction of a percentage point in the interest rate can translate into thousands of dollars lost or saved.

The monthly house payment should not be so large as to be make the purchase a risky one or so small that the increased term of the mortgage piles up more interest charges.

The price, although sometimes brushed off as not that important when compared to the amount of the monthly payment, but it is obviously very important. Overpaying could result in a substantial loss. This is obvious when you see how many people are “under water” with their home in the current economic down turn.

Here are three questions to ask yourself before buying a house:

• Is the house attractive and a good buy at the price?
• Can I afford to buy it under the financial terms offered?
• Will I save money by buying instead of renting?

Choosing a good neighborhood is probably the first step in choosing a house. Naturally you will consider availability of shopping facilities, schools, churches and transportation. But there are other things to consider.

Suburban and rural areas attract many. They provide that “spacious living” out with the trees and bees. They also present their problems.

Cost of transportation is another item that can eat into the savings you make by living in the suburbs. You may have a long commute to work and pay to park it every day. That soon runs into money.

When buying a home make sure it fits in your budget, try to keep your monthly payment around 25% of your take home pay. Also as many have discovered in these troubling economic times… when two incomes are required to make the monthly payment a job loss can seriously hurt your financial position.

There are two basic reasons why a man or woman works hard and tries to accumulate money. First, there is the desire to acquire wealth. It may be that they desire to use it to obtain an independent income, luxuries, a business or the freedom to retire when they want. The second, is a way to provide an estate to leave to their family upon death.

Building up wealth is a slow and arduous process. But creating an estate can be done overnight. Life insurance does it. For this reason life insurance should most definitely be put in place before diving into the long, slow and sometimes hazardous process of saving and investing money. After the fortune has been made, perhaps the life insurance can be eliminated, but the cost and value should be accessed. But until the investments are large enough to take care of the family and dependents in case “something happens to the breadwinner,” in other words, in case of death.

Buying life insurance is not always easy because the buyer is apt to let emotions sway their judgment. Life insurance salesmen sometimes deliberately, or unwittingly, play on these emotions and cause the buyer to get more insurance than they can afford or the wrong kind for their particular purposes.

The young person in the market for life insurance should know the fundamentals of insurance and how it works. They should understand the different kinds of insurance. They must be able to get and use expert advice. One must understand how to build a program of family security, tailored to fit their individual needs.

Get these things clear in your mind to start with:

The basic job of life insurance is protection. It has certain investment features that should be remembered. But concentrate on safeguarding your family against possible loss of your earning power. Don’t take on such things as retirement and college educational plans, at least not in the beginning.

The subject of death should not be evaded. Some people, including a lot of young couples, are squeamish about dealing bluntly and openly with the chances of death. That attitude is a luxury you can’t afford. Sit down and explore your problem thoroughly and rationally.

There are many places to keep an emergency fund, it all depends how you approach it.

We like to put ours in a Tax-Free Money Market Fund. Yes the interest is low but we view our emergency fund as a type of “Insurance” and not an investment.

Some people like to put keep there savings in a Saving Account at the bank, others in stocks, some even gold, and other mutual funds. Each place has a unique combination of the qualities you want – safety, liquidity, earnings rate and convenience. If you are smart, you probably won’t leave all your cash in a place where it is earning little or no interest. But neither will you put it all where it might be spanked if a recession hits.

The way you make up your mind depends on how conservative you want to be. Money in your checking account, strictly speaking, is working capital which you continually turn over as you pay bills. Still, there is a residual amount below which you seldom go, say $1000 or $2000. If you maintain such a minimum, this could be included in an emergency fund. However, I would never keep an emergency fund in the same account as a checking account. This makes it too easy to disappear. An Emergency Fund is for EMERGENCIES.

When you buy stock, you buy a share of a business for better or worse and take your chances on whether or not it thrives. Of course most stocks are extremely liquid, so you can always get back cash. How much cash, however, is never predictable. It always seems to turn out that when you have to sell a stock in order to obtain cash, the market is down at that particular time. Stocks, therefore, should probably not be considered as part of an emergency fund. But if they are, they should never be carried at 100% of their current price.

Cash reserves in life insurance policies are savings in one sense since you can get them back at any time. To do so, however, you either have to borrow the money back, usually at 5% to 6% interest, or you have to cash in the policy and lose its protection. One problem in borrowing the money from the account is that usually the amount borrowed is “unplugged” from the investment and stops earning interest.

There are other hard-to-measure assets that many families have that might be included in an emergency fund, for example, money built up in a 401K or IRA or ROTH IRA. This is definitely an asset under certain conditions. But there are penalties associated with taking the money out.

If you don’t know exactly how much of these assets to include in your emergency fund, try making up a report on your available resources. You might arrive at two figures, the first being bona fide cash reserves readily available, the second being your ultimate resources available in extreme emergencies.

Building up an emergency fund before you start to invest will save you worry and probably save you money. With such protection you can buy good quality growth stock mutual funds, sit back and let them appreciate in their own good time. You won’t have the haunting thought that you might have to dump them at a moment’s notice. And remember, fate often decrees that when you have to sell at a time not of your own choosing, that will probably be just the worst time – the time when the market is temporarily depressed.

An emergency fund should obviously be reserved for bona fide emergencies: serious illness, loss of job and so on. It should never be borrowed for such relatively unimportant uses as the purchase of a car, house or Flat Panel LCD TV. It should not be loaned even to close relatives except in cases of dire need.

As to how big the fund should be, an old rule of thumb says a family should be able to live for six months if its regular income were cut off. Interpreted conservatively that would mean that a family’s liquid savings, minus its short-term debt, would equal one half its annual take-home pay. Interpreted very liberally, it might mean that a family should be able to lay its hand on enough cash by various means to live six months.

In addition to liquid savings, certain other assets might be counted: cash value of life insurance policies, stocks conservatively valued, the amount invested in a 401K retirement plan. However, there are dangers of this practice. The cash value of a life insurance policy might be needed to keep up premium payments. Stocks might go so low, in a the recent recession for example, that it would be a shame to sell them. The amount vested in a 401K fund might be obtainable but with penalties attached. So for defense against a financial crisis, a family should certainly rely largely, if not wholly, on liquid savings.

There are four qualities you want your savings to have. Remember we looked at if an Emergency Fund was an “investment” or not. These qualities will pretty well determine where the money is to be kept. Listed in order of importance, they are:

Safety – You want your money to be reasonably secure against depression, panic and theft.

Liquidity – You want to know that you can withdraw your savings without too much delay.

High earnings rate – You want your money to earn interest at as high a rate as possible consistent with safety and liquidity.

Convenience – You want your savings to be located where you can take care of them with minimum trouble.

No one institution provides the maximum safety, liquidity, earning rate and convenience all in one package. It would be nice to have a place right across the street that would keep your savings completely safe and entirely liquid, while paying 15% interest. Naturally there is no such place. To get a high interest rate you must sacrifice some other advantages, such as liquidity. To have your savings instantly available you must be prepared to accept a lower interest rate.

It may be best, therefore, to split up your cash and put it in several places.

In general, we have found a tax-free money market account to be an excellent place to park money for our emergency fund.

How about you? Do you have an emergency fund? If not… get started today!

One of the first “rules” in investing is: Don’t use money that you may need for something else. The reason behind this thinking is that even the most carefully selected investment probably won’t appreciate in value all at once. It may take years for it to fulfill your hopes and expectations. In the meantime, as the stock market goes up and down, the value of your stock holdings may at times be below what you paid for it. We’ve seen that during the current recession where the stock market lost about 40% of its value. Now, if during such a dip in price you happened to need money desperately and had no reserves for emergencies, you might be forced to sell out at the worst time.

That’s the reason, one of the first investments anyone should make is to put away a certain amount of money in an emergency fund. If you have such a fund, you can approach the problems of investing with a freedom from pressure and worry that will enhance your good judgment.

Strictly speaking, an emergency fund is not an investment since investing implies converting money into stocks, real estate or something other than cash. Nevertheless, an emergency fund can earn interest or dividends and grow in value. So it is an investment in a sense. Several questions arise about a fund of this kind. What’s it for? How much do you need? Where do you put it?

Let’s assume, for a minute you have went through the steps and filled out two of the three columns in your net worth and cash forecasts – Last Year & Estimated This Year. Things overall look pretty good. From the numbers it looks like your net worth will grow through the year. It even looks positive that the bank balance will increase to a level higher than what is necessary to provide sufficient working capital. With all of this bright picture it definitely is not the time to plan a trip to Hawaii. First, take pad and pencil and make a list of some of the things that are going to be needed – or even just wanted – during the coming year. These may be things that weren’t bought last year, so these have not been calculated in the forecast. New car? New clothes? Kids going to summer camp or college? Fix the patio? Replace the refrigerator?

Write down a few items and the projected cash balance may begin to take on the appearance of a deficit. This is the time we call a family budget meeting. What comes first, the new refrigerator or new clothes? How are you going to pay for it? Use cash, borrow or sell something? Since you are looking at the money several months out, you have plenty of time to figure interest charges if you decide to buy on credit. Or maybe you might decide (which I would) to use our savings rather than borrow. If possible, treat this as a loan to yourself, to be repaid later.

Once you decide what you want and how to pay for it, begin to check on the dates of future sales and prepare to grab a bargain if you can.

Are you thinking of buying a house, trading in the car, taking out more life insurance or starting to fund your 401K plan? You can figure out exactly how it will work by getting some scratch paper and sketching out rough net worth and cash forecasts as they would appear with the proposed changes. There are pitfalls to be avoided in making hypothetical forecasts. For example, if you are planning to sell some stock for example or a piece of property, don’t forget that you will have to pay a commission and possibly a capital gains tax. Settlement charges in real-estate transactions can amount to thousands of dollars.

After you have been comparing actual expenses with your forecasts for a while, you should begin to see some patterns evolve. A sudden or unexplainable change is worth reviewing. If the “family shopper” is on his or her toes, your spending for food should stay fairly even. A steady expenditure indicates that shifts are constantly being made to buy goods that are in season or in plentiful supply. If the figures jump up and down from month to month and there is no ready explanation, it may be a sign of careless or impulsive buying.

There is much additional interesting news about your family that a financial forecast will tell you. But don’t ask it to do too much at first. Start out simply with not too detailed a breakdown of expenses. Keep the sheets handy with the checkbook and bills. Label them clearly Forecasts. Budget is a nasty word. Setting one up is an unpopular business. It would be too bad if anyone discovered that that is actually what you have done.

Once you have taken the steps to complete your cashflow and net worth forecasts you are ready to get down to business. Maybe the process took several evenings get everything figured and entered, but it will be worth it. You have now created a wonderful tool that has many, many uses. Let’s look at some.

First of all, you should now have a pretty good idea of where all of your the money has been going. As months go by, you can begin to put together a pretty smart guess as to where it will go in the future. By knowing future demands, you should be able to eliminate some overhead. Bank service charges can be cut and or eliminated. I did by using my debt/check card one time per month. Borrowing can be kept to a minimum. Maybe you will be saving a bit more in the months ahead. If, on the other hand, you are spending more, you should be able to quickly see where it is going.

The fuel which keeps a business operating smoothly is its working capital. A business may have buildings, equipment, tools, trucks and other fixed capital worth millions, but if it does not have the bank balance to meet its payroll and buy raw materials, it cannot survive. In other words, a percentage or proportion of the capital of every business must be in liquid form. And the same is true for a family.

In every family, and in every business, there is a ratio between working capital and the amount of money flowing in and the money spent. The working capital of a business is defined as the difference between its current assets and current liabilities. Any company likes to feel that it can easily meet its regular obligations and take advantage of buying opportunities or chances for expansion if they arise.

Assume that a family’s working capital is simply its average checking account balance. Use your cash forecast to estimate your own. For each period, average the initial balance after you have deposited your paycheck and the final balance. Then average all twelve. This figure has a definite ratio to your net worth. Take the family with the $300,000 house and two cars. It obviously runs a bigger total of monthly bills and needs a bigger bank balance than a family that rents a small apartment and has one car.

When a businessman’s working capital is too low it puts him under a strain. He feels as though he were driving a car too fast. There isn’t enough time to slow up or change course if a sharp bend appears in the road.

In the same way, many families keep too little cash available for day-to-day living. The reason is usually not lack of money. Rather, the money available is poorly distributed. Too much is tied up in fixed assets such as a house and a car, or in an overambitious investment programs or the credit card balance is maxed out buying “stuff they needed” and interest is eating away every month. Bad money management may cause bank service charges to be unreasonably.

By keeping an extra $500 or $1,000 dollars in your account, you might save from crisis living overdrafts. An average bank balance equal to one month’s income is for most people a comfortable level.

Too small a bank balance can also cause unnecessary short-term borrowing and prevent the taking of discounts for prompt payment. It can even hurt your credit by making you late in paying bills. But worst of all, it can cause all kinds of worry, stress and strain as payday approaches and the bank balance sinks dangerously close to zero.