By Frances O’Rourke, Colonie Spotlight
Warren Buffet is well known for his simple two-rule approach to wealth building. Rule one: never lose money. Rule two: never forget rule one.
Man with Hands on Head Looking at 1040 and United States Tax Instruction Book (Getty Images)
When talking about personal finances, it’s easy to get lost in the broadness of the term. For starters, it covers everything from how we budget to how we spend, borrow, save, invest and earn. In addition, it often carries the connotation of being a day-to-day thing. But if we take a step back and really take a close look at why personal finances matter, the focus becomes very clear. How we manage our personal finances matters because it is what allows us to build wealth.
Know the Path, and Follow the Rules
You have probably heard the adage that if you don’t know where you are going, any road will get you there. For some, there’s an attraction to such adventure. For the rest of us, even if we do appreciate a good adventure, we know there are risks inherent in aimless wandering—especially when it comes to money. Therefore, the key to building wealth is to know your destination, to know the path to financial freedom is lined with smart personal finance decisions. These seven golden rules will help keep you moving in the right direction:
1. Always pay yourself. The simplest way to make money is to save money. Set up your savings account for biweekly or monthly automatic deposits. Why is this so important? Because every dollar you don’t save for your future is a dollar you have to re-earn for your future. It is actually more than a dollar when accounting for earnings on interest.
2. Keep good company. When it comes to how you manage your finances, surrounding yourself with people who share your values and understand your goals will make it much easier for you to build wealth. This applies to both personal and professional relationships. For example, today’s investment and tax environment is increasingly complex. Working with a team of qualified financial professionals and attorneys can be crucial to making sure your wealth management needs are met.
3. Establish a retirement plan. Consider a Roth IRA. Contributions to a Roth IRA are made from your after-tax income, so when you are finally eligible to withdraw you won’t be required to pay federal income tax on it. If you are employed, contribute to your 401(k), 403(b) or 457(b) account. Contributions to these accounts are often matched by your employer. Also consider opening up a high-yield savings account. Every penny matters, and when your income increases, make corresponding increases in deposits into your savings and retirement accounts.
4. Create an emergency fund. Save for the things you want and always spend with a plan. This is easy to do if you set up a savings account and make regular automatic deposits. Build up to a six-month emergency fund. By saving for the predictable and unexpected you will keep yourself free from being indebted to friends, family or credit cards should the unfortunate happen.
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