Jonny Pean doesn't just work in the financial industry; he offers the man on the street insight regarding it on his blog, Finance Wand. Jonny spoke with us about getting your finances in order now, and how that will look in the future.
What are some common misconceptions you see about personal finance?
Well, when it comes to personal finance or money management, there is no dearth of misconceptions, especially amongst common folk with medium income. Let's have a look at some of them.
More money means more happiness - Being so, every celebrity would be happy while the reality says something else. Money, fame, fortune - these can't really make one happy. Happiness is something that comes from within. It's something which is completely unrelated to money. When someone is on his death bed, he doesn't think about money.
Big income ensures zero debt - No, this is a sheer misconception. Is there any difference between one who makes $50,000 per year with a $100,000 mortgage and one who makes $500,000 per year with $1 million in mortgage debt? In reality, debt rises with income. Your positive thought and mentality to repay on time can only keep you out of debt.
More money equals to fewer worries - Money can't end anxiety. Rather, it gives rise to something to be anxious about - losing your hard-earned money.
Money ensures security - This is true to some extent. Money can make your life partially predictable, but you can't control your destiny. We all are bobbing in the sea of uncertainty; no matter how rich you are.
Money can buy friends - This is just opposite to what your money can do. Money can attract ample of hangers-on, but it can't buy friends.
How should we prioritize our debt? What's most important to look at?
It may be overwhelming for you when you have so many different types of debt like secured and unsecured debts, loans and credit card debt. Choosing to pay the wrong debt first can be costly, and you may end up in a worse situation. Mentioned below is the order in which you can follow to make your debt payment without breaking your bank.
- Pay your mortgage payment first. This should be your top priority.
- Pay your property taxes to avoid having tax lien placed on your property.
- Pay homeowner's insurance on time, though it's not a direct debt. Unless you pay it on time, your policy can be cancelled.
- Pay secured debts like auto loan before the unsecured ones.
- Pay federal income taxes, especially if you own any assent that the IRS (Internal Revenue Service) can place a lien on and take possession.
- Pay federal student loan - Direct or Stafford, IRS may tax your tax refunds to cover up unpaid amount.
- Pay your medical bills to continue getting doctor's facility.
- Now pay unsecured debts like credit card debt and others in an order from highest interest rate to lowest interest rate.
If you're in a lot of debt, what are some good strategies for getting out?
Getting out of debt is not very difficult; all you need to be a bit strategic. Here are some good strategies to follow which you can get out of existing and delinquent debts without putting in much effort.
- Increasing monthly minimum payment amount on debts.
- Create an emergency fund.
- Make a big payment to just one of existing debt accounts every month until it is paid off completely.
- Negotiate with the creditor for a lower interest rate.
- Try to find out ways to put more money on your debt payment.
- Opt for a debt settlement.
- Go for credit counseling.
More and more of us have substantial student debt. What would you say to a college student looking at loans right now?
With President Barack Obama's latest student loan scheme, "Pay as you can," about five million borrowers can be affected. Many students are happy with this update, as the new plan allows borrowers both old and new to pay off with a convenient portion of their income, and get exemption from payment further. And thus, it is taking a step towards a much essential direction of relief.
On the other hand, a large portion of the student population is not happy with this owing to the loopholes plugging measures because the program has left many big issues unaddressed. It shuts out those students who are earning suitably high but are also carrying a much higher debt than the average lot. Another big issue where the new scheme won't work is addressing the question of the tuition fees itself. Unless a plan is evolved to tackle that issue and lessen the tuition charges, the problem with student loan debts will only grow.
What are your personal criteria for an investment, that will make you put down your money or move on?
Investment is one of the most important parts of personal finance or money management. Here is my personal opinion about investment.
- Set up your investment goals.
- Understand different investment instruments.
- Choose a reputed investment broker.
- Learn different investment strategies.
- Create your portfolio.
- Be loyal to your investment strategy.
However, above-mentioned criteria are applicable for stock market or mutual fund investments. For general investment, you may follow the below-mentioned strategy.
- You can enroll in your employer's 401(k) plan.
- You must build an emergency fund.
- f you're eligible for Roth IRA, you must max it out. This is also applicable for Traditional IRA.
- Purchase a home.
- Slowly but steadily build your wealth.
For more of Jonny's insight, follow him on Twitter.