Interest rates and prices fluctuate in response to headlines about national and global events that affect the economy. To gain control over personal finances, individuals must take proactive steps to navigate in these volatile times.
Step#1: [highlight]Create a monthly budget[/highlight]. This topic was discussed in my previous blog post; click here to read full article. A budget is a plan for how to allocate income to meet expenses for a designated month. By understanding your spending patterns you can achieve better control over your income.
Step#2: [highlight]Start a retirement savings account[/highlight] – this may be a 401(k) or IRA. Take full advantage of employer’s matching funds. Seek expert advice and guidance as needed from a financial adviser or an estate-planning professional.
Step#3: [highlight]Start an emergency fund[/highlight]. Save 3-4 months of living expenses in a form of a savings account, money market fund or short-term certificates of deposit (CDs).
A certificate of deposit (CD) is a time deposit, a financial product commonly sold in the United States by banks, thrift institutions, and credit unions. CDs are similar to savings accounts in that they are insured and thus virtually risk-free; they are “money in the bank”. In the US, CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union Administration (NCUA) for credit unions. They are different from savings accounts in that the CD has a specific, fixed term (often monthly, three months, six months, or one to five years), and, usually, a fixed interest rate. It is intended that the CD be held until maturity, at which time the money may be withdrawn together with the accrued interest.
I recommend the CD option if you don’t think you will be needing the money in the short term. Remember, this is just like a savings account, so treat it as such. This liquid reserve will serve as a temporary shield in the event of a job loss or other unforeseen interruption in earnings. You can check CD rates at Bankrate.com or do a quick Google search.
Take advantage of special offers on regularly purchased items. Also, it may be advantageous to refinance a mortgage and other loans at a lower rate- the possible savings from lower interest rates is significant. Use any net savings to fund the emergency and retirement accounts. Individuals should also utilize all financial tools that are available to them. These include direct payroll deposit, automatic transfers to investment accounts, overdraft protection and online bill pay. These programs can save time as well as simplify personal financial management in today’s shifting economic climate.
Don’t be a victim to the geopolitical games and global uncertainties.
Be in control of your personal savings and your financial well being.