Forget what you’ve heard. The recession and slumping economy have changed the way people spend and save their money. Now, there’s a slew of new rules to generate the most cash flow, start a new business, invest in the market and minimize debt.
Here are tips from some of the greatest money minds on how to hook up your finances and save yourself from financial ruin.
In the past, financial experts have pushed the idea of building an emergency fund to help with long-term expenses when life’s unexpected events occur. Emergency funds can go towards the big stuff like getting laid off, medical expenses or major home repairs. But today’s experts say you should also start a “life happens” fund for those short-term problems like getting your car fixed or a broken dishwasher.
QUICK TIP: “An extra savings account with $1,000 to $2,000 should cover ‘life happens’ mishaps," says Michelle Singletary, author of “The Power to Prosper: 21 Days to Financial Freedom.”
In the past, the advice was to use your debit card as a means of controlling your spending. Now, experts say that unlike credit cards, debit cards offer no consumer protection on purchases and if you spend more than what’s currently available in your account, you’re actually accruing more interest than what you’d pay with your credit card.
QUICK TIP: Use your credit card to pay for everything and pay off your balance promptly each month or stick with just paying in cash.
It makes sense to want to sell stock for $10 and sell for $20 to make a profit, but Kim Kiyosaki, author of “Rich Woman: A Book on Investing for Women Because I Hate Being Told What to Do!” suggests women think more about their long-term options. “Women should invest for cash flow instead by looking for which company stocks pay the best dividends—cash return paid quarterly to stockholders,” says Kiyosaki.
QUICK TIP: Consider purchasing a foreclosed property, fixing it up, and then renting it out as a means of gaining equity and a monthly cash flow. Go to bankforeclosuressale.com.
Didn’t think you could afford to go back to school? Find out if your job will allow for tuition reimbursement to help you further your education. Not only will you show your employer you’re trying to increase your value to the company, but you’ll be setting yourself up with classes, extra training and certifications to be an even hotter commodity when that new opportunity rolls around.
QUICK TIP: Convince your employer to reimburse at least a percentage of your schooling. Read “The Career Coward’s Guide to Career Advancement” by Katy Piotrowski, suggests Singletary.
Although it’s a buyer’s market and interest rates are tempting, think about the fact that the value of your new home may be depleted over the next few years if you buy in today’s market. There goes your equity! Not to mention, you have to ask yourself if your job is secure enough for you to make such a big purchase at this time.
QUICK TIP: Sit down and ask yourself, what’s more financially prudent, to buy or rent. Check your math using a Rent vs. Buy calculator.
If you have the time, patience and willingness to save big bucks, you have what it takes to be a world-class bargain shopper. Find a consignment shop in your area. Before you go shopping, figure out how much you’re willing to spend.
QUICK TIP: You may find items that have holes or stains. Makes sure you review the items thoroughly before you make any purchases.
You might be tempted to go out and buy a brand-new car as a reward to yourself for a new promotion, but consider that new vehicles lose up to 20 percent of their value within the first year of purchase, according to wealth expert Lynn Richardson. Think about joining a car sharing program like ZipCar that charges its members by the hour for the use of one of its cars instead.
QUICK TIP: Find an independent dealer at Drivetime.com who can give you a good price on a used car with low mileage and in good condition.
Got a son or daughter who’s thinking about going to college? It’s not too late for you to map out a plan. Consider putting money into a tax-friendly 529 Plan which will vary depending on what state you live in. The 529 College Savings Plan will allow you to select various investment options while the 529 Prepaid Tuition Plan allows you to pre-purchase tuition based on today’s rates and prices.
QUICK TIP: For those of you whose kids are almost college bound, sit down with your child and search for grant, scholarships, loans and work study/off campus job options.
How many people do you know who are still paying off their mortgages even though they are in their twilight years? You should be paying as much as you can now while you’re making the most money and working in your prime years. You want to retire and not have to worry about paying such a heavy bill when you’re on even more of a fixed income.
QUICK TIP: An extra monthly payment a year could help eliminate your mortgage before you retire.
Stocks can be intimidating no matter what your bank account looks like. Face your fears and talk to someone you trust who has already taken the leap. Buying in a down period will pay off but it could take time. If you need the money in the next five years, Mellody Hobson, president of Ariel Investments in Chicago, suggests you either wait for the rewards or consider another option.
QUICK TIP: Find top performing mutual funds and then contribute $50 a month to one that’s doing the best.
A new business is going to need advertising to get the ball rolling, but there’s never enough budgeted toward getting the word out. Consider using social networking sites like Twitter and Facebook and link to your businesses Web site. Just remember once it goes viral, your business has the potential of becoming an overnight international sensation.
QUICK TIP: Start a blog. Log on to stevepavalina.com, a site dedicated to personal development for smart people, to learn how to monetize your blog to talk about your business.
You want to start a new business but have no idea if there’s a need? Don’t go old school by sending out questionnaires in the mail. Use an inexpensive online survey like SurveyMonkey to get feedback from others, suggests Kimberly Seals Allers, president of the Mocha Manual company and author of “The Mocha Manual: Turning Your Passion into Profit—How to Find & Grow Your Side Hustle in Any Economy.” It has a free option for up to 100 responses and costs $19.95 for 1000 responses.
QUICK TIP: For an informal focus group, host a dinner party with your smartest friends. Leave the room during the survey to ensure that your guests feel free to be as honest as possible.
With African-Americans having the highest unemployment rate of all ethnic groups at 15.1 percent, you may want to just focus on your job. We’re saying think about focusing on two. Starting a business or finding a part-time side hustle will surely increase your cash flow.
QUICK TIP: “It doesn’t matter what you think you can’t do,” says Richardson. “You have some gifts that someone is willing to pay for. Use them.”
It used to be that retirement was guaranteed at 65. Nowadays, you may want to consider easing into retirement rather than stopping completely. Each year you defer retirement, you are increasing your income and ability to pad your cushion.
QUICK TIP: Find out how much you need to save to have a comfortable retirement. Go to ssa.gov/estimator/ to see your estimated retirement benefits.
Tell us your own money rules below.