Dave Ramsey, American radio personality who offers financial advice, said something that has stuck with me over the years, “name your money”. You may be wondering what that means. Well, to put is simply, EVERY DOLLAR when it comes into your home should have a JOB. Money should not be just “hanging around” without purpose. You have traded your time and energy to earn money, so it should be working hard to provide for your household.
Pay for Immediate Needs:
The first job for your money is to meet your immediate needs. I stress NEEDS because this is not “fun money”. The first job of your money is to secure food, housing, utilities, clothing and transportation for you and your family. These are the financial foundations of living, so live within your means. This money should be easily accessible, like in a checking or savings account.
Save for Short-term Needs (up to 3 years):
Short-term needs are things like an emergency fund, and large purchases like a car down payment or major home appliances. A home down payment can be included here depending on your time horizon. Also, fun things like saving for Christmas, major birthdays and anniversaries, or vacations. Saving for these kind of things helps keep them from being potential budget busters or draining your emergency fund. This money should also be kept liquid in a regular savings account or you could also put some in money markets or certificate of deposits (CD). I stress the financial vessel needs to be liquid and easy to access with low or no fees. One tip, do not hold the funds in a primary checking account.
Invested for Intermediate (3-10 years) and/or Long-term (10+ years) Needs:
It is time to look further out for things like saving for a down payment or purchase a car, down payment for a home, college or technical school tuition for your kids (or yourself) and retirement. Now your money has more time to work. For the intermediate needs you can still use CDs and/or money markets. These accounts are FDIC insured and safe. However long term, you should also consider including stock market investments, like 401ks, IRAs, index funds and mutual funds, plus enlisting the help of a financial planner who can provide you with even more investing options. You will be amazed how saving and investing, even small amounts, can compound over years.
The key to putting your money to work is to pre-plan using a budget (you knew I would say that) so when the funds hit your account it knows, and you know, its assignment, then gets to it. Another tip, is to make as much as possible automatic, especially saving and investing. That way you don’t even have to think about it or remember.
Listen, you work hard for your money. Make it work hard for you too.
Until Next Time♥…
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