For our newer readers:  Finance articles are intended for people who are not particularly knowledgeable in financial issues.  Over the years, a wide variety of subjects have been covered.  This month’s column will be somewhat repetitive, but you can also expect some more recent insights and additional factors that will be helpful as well.  

This month’s column will be strictly personal finance.  This month’s Investors Column will cover the most basic factors for someone who has just started investing in stocks, or who may be considering buying stocks for the first time.

Personal finance at the most basic level involves what you can do to get the most utility and pleasure out of the money in your regular paycheck.  

Stay Out Of Debt

First and foremost, stay out of debt.  Debt results in interest you must pay as well as the money you borrowed.  

Debt for most people involves three or four sources of debt.

First is student loans you may have taken out to pay for college.  When you are in college, avoid all student loans, if you can.  Work at jobs – full-time during the summer, part-time while college is in session.  Sound tough?  It is, but many, many people before you have done it.  If they could do it, you can do it.  Your own personal determination is what is needed to accomplish your goal of getting that college degree.

Pay off your credit card debt each month.  Getting a credit card is recommended; having one and using it is often a great way for a young person to build up a good credit history, by keeping it paid off each month – that will be important when you are buying a car or a house.  

Pay off that credit card in full every month.  Credit card debt is the worst debt of all – expect interest rates of 18% or higher.  Put that 18% into meaningful terms:  if you paid $30 for a meal at a restaurant, an 18% interest rate means you will be paying an additional $5.40 – every month, until you pay it off.

Learn to budget your money, to limit your spending to only what you can afford.  At times, that may only be enough for food, rent, and a few pieces of clothing each year – at someplace inexpensive, like Walmart. 

So you don’t like cheap clothes?  Make that be your incentive to finish your schooling and get a good job doing whatever it is you would really like to do.

Buying a Car

When you buy a car, pay at most no more than half your annual income.  If that means a small used car, again:  use that as incentive to get the schooling you need for something better.  

The cheaper the car you buy, the more money you will have to spend on other things.  People call that “discretionary spending.”  The money you don’t spend on the things you need is money available to spend on other things – be they necessities or things you would consider “nice to have.”

Buying a House

When buying a house, limit your search to houses priced no more than 2.5 times your annual income.  If you are married, that amount can be 2.5 times your combined incomes – unless you are planning on children that will mean the loss of one person’s income.

Again, that 2.5 multiplier is just a maximum.  If you buy a house that is only twice your annual income, that increases the amount of money you will have for other things – discretionary spending, again.  

Save your money for a down payment for the house purchase.  You will need at least 5% of the price of a house as a down payment, but 10% is much better.

Warning – real estate agents will work very hard to convince you that you can afford a much more expensive house; and they are right, if food, clothes, a car, etc., as well as that “discretionary spending” are things you do not need.  The bank they will also bring into the deal will assure you it will work.  Both are salivating over the bigger fees they will get if they can convince you to give in.  

Both are giving you bad advice.  Neither the real estate agent nor the bank will care if you are broke after you sign on the dotted line.

Your House Mortgage

When buying a house, you will need to borrow the money to pay for it.  The bank is where you get your loan for the 90% or 95% of the house’s price which you do not have.  

The cheaper the house, and the bigger your down payment, the smaller your mortgage will be.  

Mortgages are typically offered with 15-year, 20-year, or 30-year pay-back plans for the loans.  Not surprisingly, the bank prefers a 30-year loan.  If you do the math, with a 30-year mortgage, you will ultimately pay three times the price of the house.  Three time the price!

Get a 15-year mortgage loan.  While that friend who bragged to you about the nice big house he bought by getting a 30-year loan, you will be enjoying having more discretionary spending – and he will be mystified as to how you can afford to do what he cannot.

Budgeting for Your Kids

When your kids are young, start introducing the idea of a weekly allowance that includes a fixed set of chores – cleaning their room, helping with the laundry and kitchen work, and later, mowing the lawn, etc.  

When they reach their teen years, and no longer like your fashion choices for their clothing, increase their responsibilities and thus allowance enough to pay for their own clothes.  They will quickly learn they need to budget to have enough clothes.  Those expensive brand-name clothes will soon become less desirable than discount-store clothes.

You will have provided ten years of budgeting experience by the time they are ready to live on their own – while their friends are stuck living in their parents’ basement.  

Your kids who thought you were so mean will soon understand that you were great parents.  

If so, maybe they will even let you help them shop for their first car and first house.  

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