5 Finance Basics You Should Have Today


Before you can become a financial powerhouse, there are some basic things you should have.

You aren’t going to know exactly how to improve your finances without going through a few steps.  The first thing you need to do is know what your situation really is.

Emergency Fund

How much do you have in savings?  It is very important that you have sufficient savings in liquid assets that will act as an emergency fund.  In the event that anybody in the family loses their job or needs bail money, savings is important.  Suze Orman famously has the rule of 8 regarding emergency funds.  You should have 8 months of expenses saved in liquid assets at all times.

No more than half of these savings should be in an investment account.  You need to be able to get to this money quickly when you need it.  It can take 3-5 business days to pull money from an investment account.  Not to mention, the value is constantly fluctuating which makes it less reliable.

When I talk about liquid assets, I primarily mean money in a savings or checking account.  It is ok to have some cash, bail money, but you generally want to have this money in a bank.

How Much Have You Saved for Retirement?

I’m sure that you have heard all financial advise start with the importance of retirement savings.  I hope you were listening and started a 401K.  Social Security is not going to be around….blah blah blah.  I know, you’ve heard it all before, but here it goes again.

Start a 401K.  Invest in index funds, not your company’s stock.  Save as much as you can afford to within the contribution limits.  Do not touch it unless there is a real emergency.  Buying a house is not an emergency.  It is more important financially to keep your retirement savings in tact than to own a house.

Do You Have a Financial Dossier? (No, not the one with the Russian strippers)

It is important for us to maintain detailed records of our financial lives.  This file should have detailed account information, account numbers, logins, etc.  Obviously this file needs to be highly encrypted and there should be a backup.  You should know your entire financial picture before you can improve it.   You keeping all of this information together and organized is a great start.

This file should contain details of all your accounts like checking, savings, auto, credit cards, etc.  You also want to keep details of your life insurance policy and your will.  In the event that something happens to you, somebody else needs to know how to access this file.

Track Your Income and Spending

Find a system that you can use to keep track of how much you’re spending and what you’re spending money on.  It is fine if you are using a check register or if you are using an app.  What is important is that you understand how your money is being spent.  One of the tools I’ve used is mint.com. It’s free, it’s comprehensive and it’s created by Intuit.  With this app you can track and categorize your expenses while keeping track of savings and investments. 

Buy Life Insurance and Create a Will

One of the most important things you can do is to have life insurance and create a will. It’s important for you to make sure you leave something behind for your family.  If you have kids, this should be a no brainer.  Buying life insurance through your employer is usually very cheap.  Setting the policy at about 4 times your salary is a good number and should leave your family financially comfortable.

If you do not have these things now, your next steps should be to establish them:

Emergency Fund


Financial Dossier

Track Your Finances

Life Insurance / Will

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