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Catalog / Personal Finance & Budgeting Cheatsheet

Personal Finance & Budgeting Cheatsheet

A quick reference guide to help you manage your personal finances effectively, create budgets, and achieve your financial goals.

Budgeting Basics

Understanding Your Income

Gross Income:

Total income before taxes and deductions.

Net Income:

Income after taxes and deductions (take-home pay).

Income Sources:

List all sources of income (salary, investments, side hustles).

Tracking Income:

Use a spreadsheet, budgeting app, or notebook to record your income regularly.

Importance:

Knowing your income accurately is crucial for effective budgeting.

Example:

Salary: $5,000/month, Side Hustle: $500/month. Total Gross Income: $5,500/month.

Tracking Your Expenses

Fixed Expenses:

Expenses that remain consistent each month (rent, mortgage, insurance).

Variable Expenses:

Expenses that fluctuate each month (groceries, utilities, entertainment).

Periodic Expenses:

Expenses that occur occasionally (annual subscriptions, car maintenance).

Expense Tracking Tools:

Use budgeting apps (Mint, YNAB), spreadsheets, or notebooks.

Categorize Expenses:

Group expenses into categories for better analysis (housing, food, transportation).

Review Regularly:

Analyze your spending patterns to identify areas for potential savings.

Creating a Budget

Zero-Based Budget: Every dollar is assigned a purpose (spending, saving, debt repayment).

50/30/20 Rule: Allocate 50% of income to needs, 30% to wants, and 20% to savings/debt repayment.

Envelope System: Use physical envelopes to allocate cash for specific spending categories.

Budgeting Apps: Utilize apps like Mint, YNAB, or Personal Capital for automated tracking.

Spreadsheet Budget: Create a custom budget using Excel or Google Sheets.

Regular Review: Review and adjust your budget monthly to stay on track.

Saving Strategies

Setting Financial Goals

SMART Goals:

Specific, Measurable, Achievable, Relevant, Time-bound.

Short-Term Goals:

Achieved within 1-3 years (emergency fund, vacation savings).

Mid-Term Goals:

Achieved within 3-10 years (down payment on a house, car purchase).

Long-Term Goals:

Achieved in 10+ years (retirement, children’s education).

Prioritize Goals:

Determine which goals are most important and allocate resources accordingly.

Regularly Review:

Track progress towards goals and adjust strategies as needed.

Emergency Fund

Purpose:

Covers unexpected expenses (medical bills, job loss, car repairs).

Amount:

Aim for 3-6 months of essential living expenses.

Where to Keep:

High-yield savings account or money market account.

Replenishing the Fund:

Replenish after each use to maintain the desired balance.

Accessibility:

Ensure easy access to funds in case of an emergency.

Example:

If monthly expenses are $3,000, aim for an emergency fund of $9,000 - $18,000.

Saving Tips

Automate Savings: Set up automatic transfers to a savings account each month.

Cut Unnecessary Expenses: Identify and eliminate non-essential spending.

Use Cash-Back Rewards: Utilize credit cards with cash-back rewards for purchases.

Meal Planning: Plan meals in advance to reduce eating out.

Shop Around: Compare prices before making purchases.

DIY Projects: Handle home repairs and projects yourself to save on labor costs.

Debt Management

Understanding Debt

Good Debt:

Debt that can increase net worth or generate income (mortgage, student loans).

Bad Debt:

Debt that does not increase net worth and often carries high interest rates (credit card debt, payday loans).

Debt-to-Income Ratio (DTI):

Percentage of monthly income that goes towards debt payments. Lower DTI is better.

Credit Score Impact:

High debt levels can negatively impact your credit score.

Interest Rates:

Understand the interest rates on each debt to prioritize repayment.

Debt Inventory:

List all debts, balances, interest rates, and minimum payments.

Debt Repayment Strategies

Debt Snowball:

Pay off debts in order of smallest to largest balance, regardless of interest rate.

Debt Avalanche:

Pay off debts in order of highest to lowest interest rate, regardless of balance.

Balance Transfer:

Transfer high-interest debt to a credit card with a lower interest rate.

Debt Consolidation:

Combine multiple debts into a single loan with a lower interest rate.

Negotiate with Creditors:

Attempt to negotiate lower interest rates or payment plans.

Increase Income:

Increase income through side hustles, raises, or new job opportunities to accelerate debt repayment.

Credit Card Management

Pay on Time: Always pay credit card bills on time to avoid late fees and negative credit impacts.

Pay in Full: Pay the full balance each month to avoid interest charges.

Keep Credit Utilization Low: Aim to use less than 30% of your available credit.

Monitor Statements: Regularly review credit card statements for fraudulent activity.

Avoid Cash Advances: Cash advances often come with high fees and interest rates.

Choose the Right Card: Select credit cards that align with your spending habits and offer rewards.

Investing Basics

Introduction to Investing

Why Invest?:

Grow wealth, achieve financial goals, and beat inflation.

Risk Tolerance:

Assess your comfort level with investment risk.

Time Horizon:

Consider the length of time you have to invest.

Diversification:

Spread investments across different asset classes to reduce risk.

Start Early:

The earlier you start investing, the more time your investments have to grow.

Long-Term Perspective:

Invest with a long-term mindset to weather market fluctuations.

Investment Options

Stocks:

Ownership shares in a company.

Bonds:

Loans to a government or corporation.

Mutual Funds:

Pools of money invested in a diversified portfolio of stocks, bonds, or other assets.

Exchange-Traded Funds (ETFs):

Similar to mutual funds but traded on stock exchanges.

Real Estate:

Investment in physical properties.

Retirement Accounts:

Tax-advantaged accounts for retirement savings (401(k), IRA).

Investment Tips

Start Small: Begin investing with small amounts and gradually increase contributions.

Dollar-Cost Averaging: Invest a fixed amount regularly, regardless of market fluctuations.

Reinvest Dividends: Reinvest dividends to purchase more shares and compound returns.

Review Portfolio Regularly: Review and rebalance your portfolio periodically to maintain your desired asset allocation.

Seek Professional Advice: Consult a financial advisor for personalized investment guidance.

Stay Informed: Stay updated on market trends and economic news.
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