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How to effectively manage your personal finances
A recent report focused on the fact that only 39 percent of baby boomers have savings for retirement. There is a simple way to start the process and to create a consistent effort in achieving savings, no matter what your age. - photo by Larry Friis
A recent report focused on the fact that only 39 percent of baby boomers have savings for retirement. There is a simple way to start the process and to create a consistent effort in achieving savings, no matter what your age.

Each semester I ask students if they believe they can save money and the answer is always the same: we are poor students and can't save money. I then place a wager consisting of identifying for them $50 per month in exchange for a chocolate milkshake. They are asked how many times they eat out, go to the movies, rent videos, etc. Now I do not propose that one needs to be a hermit, but discipline around expenditures is the first step to saving money. This applies to all of us at all times of our lives.

If one is disciplined enough to sacrifice today for what is more important tomorrow and reaches a goal in the decade of their 20s to put $20,000 aside, they can have a significant retirement cushion. Here is how it works. Typically a work career lasts nearly 40 years. In that period of time a saver can double his money five times. The assumption goes like this: If you save $20,000 at an interest rate of 6 percent, you can double your money every eight years, which is five times in one's work life. The $20,000 becomes $640,000.

It all starts with putting $50 per pay period aside and finding the right investment vehicle such as where one can earn 6 percent on the money. Other places include retail investment accounts with a minimal opening deposit after which small increments are acceptable. This can be achieved through a Charles Schwab, etrade, Principal Financial or Fidelity account. It is all about consistency and dedication.

Part of the dedication has to be the review of your personal financial condition on a regular basis. I suggest June 1 and Dec. 31. The review should be a goal-setting session while assessing one's personal financial statement with the purpose of increasing assets, decreasing liabilities and increasing credit scores. We can become part of the 5 percent if we keep a disciplined practice on a semi-annual basis.


Assets are comprised of everything you own. The assets are segregated into groups like cash, stocks, bonds, real estate, and other real estate (investment or second homes) along with insurances, etc. Goals relative to the increase or acquisition around assets are vital to financial progress.


Liabilities are everything you owe and are categorized as current obligations (credit cards, bills) bank notes (cars and other personal debt), mortgages, etc. Monthly liabilities should not exceed 45 percent of your monthly income. On an overall basis, liabilities should not be more than 60 percent of your annual income except for mortgages, cars and student debt.

Personal information

Name, rank and serial number, right? This also includes salary information along with questions like how long have you lived where you live and how long have you worked where you work. This creates a picture of stability and should reflect few employment and address changes.


Schedules ask for more specific information relative to assets and liabilities, including balances, interest rates paid and length of time remaining along with other detail. In reviewing the schedules found on your personal financial statement, you can determine if interest rates are too high and if so, refinance.

In describing all of this, you can see that your entire life really is contained on a personal financial statement. At the same time you can see that in conducting a six-month review of your statement it gives you a chance to manage all of it. Let me give you some examples:


How much are you paying for the coverages you need? In the six-month intervening period, has there been a family event of some kind that changes the coverage requirements? Has your personal credit improved in such a way that you might be able to pay less now than six months ago? If so, you just put money in your pocket.


Here you can do the same kind of review and see if you can pay less in interest on any remaining debt balances. This review should be comprehensive and include car loans, credit cards and other bank notes. Here is also the opportunity to set goals for debt reduction over the next six months. Write the goals down and track them.


Have rates decreased? Can you take advantage of any changes? Here you can measure your progress and set goals to reduce mortgages faster than scheduled.

Goal-setting is such an important part of the process. Determine which assets you want to increase and which liabilities you want to decrease. Measure, monitor and adjust every six months.

Keep files in each category for organizational purposes and to make tax season easier. Spending a little time on a semi-annual basis with organization will help tremendously. Studies have shown that people who take a proactive approach to this side of their personal financial management become a part of the wealthy population.

This management method will also keep your credit score closer to the top of the scale because of your keen awareness of your financial condition.
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