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The subject of personal finance is very broad, but as abeginning, I would like to discuss what I consider thefoundation of personal finance: security.SecuritySecurity to me means that I am prepared for the “hit by abus” scenario.I have life insurance to provide for my wife and children.Health, disability, auto and home insurance policies alsoprovide me additional protection in their respective areas.I also have a list of where these policies are, who myagents are, phone numbers and basic policy information (#s, amounts, costs, etc.) I keep this information both in afile at my house and in a safety deposit box at the bank (afriends home will also work – think: “house burns down”scenario). Also my wife and my brother and sister-in-lawwho live nearby also know where these things are.I also try to maintain an emergency fund of cash in a bankaccount or money market account (with checks) so that I amprepared for a financial disaster, layoff, or naturaldisaster. It took several years to build up this cash fund.I started with a goal to have enough cash for 6 months of mynormal financial needs (mortgage, food, insurance,transportation, etc.). Now I am trying for 12 months’worth. I do this by saving a little each month, and”investing” a portion of all “found” money (gifts,inheritances, tax returns, anything unexpected).I have a will and update it each year around New Year’s toreflect any changes in my life during the past year (newchildren, new home or business, etc.). Most people don’tneed an extensive will, the forms you buy at your officesupply store will do. But in some states if you die withoutone, watch out. What happens to your money and even yourchildren could be entirely up to some state or courtappointed official.StabilityThe next level of personal finance is stability.Stability to me means that first of all I live within mymeans. I don’t spend more than I earn. Otherwise I amspending my savings, investments, emergency money, orgetting into debt. I have a lot of debt, but most of it isreal estate which is producing some income. I try to avoidcredit card debt and purchase everything with money Ialready have. I don’t buy things expecting that next monthI will have more money or I will get a big raise orpromotion. You can’t sell me a car based on a monthlypayment amount; I want to know the final price!In order to make sure that I am living within my means, Icreated a simple budget and I track my expenses using SimpleJoe’s Expense Tracker. I can tell how much I have spent ineach budget category and I know when to keep a closer eye oncertain types of expenses, or when and where I can cutexpenses and what I can live without in order to stay withinmy budget. Counting pennies is pretty tedious, but trackingwhere the dollars go can be eye-opening.Another aspect of stability is avoiding or eliminating debt.Debt in itself is a form of stability; you always have tomake those payments until it is all paid off.Some recent reports show that the average American is $7,000- $20,000 in debt. Most of it is consumer debt: creditcards, store accounts, rent-to-own, auto loans, etc. Andthose types of consumer debt usually charge a higherinterest rate than any savings account, CD, or money marketaccount; even more than most high-flying risky investments.This means that $1,000 in debt at 18% is costing you 9 timeswhat your $1,000 savings account at 2% is producing.Consumer debt is a dangerous spiral that is very hard to getout of.The first problem is, as mentioned before, living withinyour means. Don’t get further into debt to support anextravagant lifestyle. Or even if you are frugal, if youare using credit cards and debt to finance your purchases,you either need to stop purchasing luxury items or find away to increase your income to support thesepurchases/payments.You may even have to lower your standard-of-living becauseyou have racked up considerable debt and need to free upsome money to pay it down. But don’t wait to start. Thoseminimum payments are often designed to keep you paying 18%interest for 40 years! That’s longer than most home loans.You could even end up paying more than 10 times the originalcost of the item just in interest payments. Is that newstereo really worth that much?To help people get themselves out of debt we created the”Pay Off My Debts” tool in Simple Joe’s Money Tools. It isalso available as a stand-alone product called Simple Joe’sDebt Eraser. These tools help you create a Rapid DebtReduction Plan which shows you how much to pay on each debteach month in order to save as much on interest charges aspossible and pay off your debts as soon as possible.These tools can help you systematically eliminate your debtswhether you owe $1,000 or $100,000. The key is to startliving below your means and start focusing on paying offyour debt.It doesn’t make much sense to be worried about whether ornot your 401k earns 8 or 9% this year, if you are paying 21%on your credit card debt.A third aspect that starts in the stability category andtranscends to the next personal finance level, growth, isthe concept of investing in yourself. By this I meanspending time to educate yourself in personal financematters, as you are doing right now and spending timegaining more knowledge and improving your skills or evendeveloping new ones.As an employee, this can have a direct relation to who getslaid off during the next round of cutbacks. If you havesome skills or have demonstrated some abilities that are notpossessed by your co-workers and these skills make you amore valuable employee, you are less likely to get thepink-slip.Also while you are making yourself more valuable to yourcurrent employer, you are also making yourself worth more tofuture employers. It is much easier to land a job if youhave some special skills that are in high demand or even ifyou bring some special knowledge or experience that youfellow job-seekers may have overlooked or failed to investin.Being in the computer industry, I have to spend hours eachweek reading trade magazines, exploring web sites, andreading emailed newsletters to keep abreast of what is newin my field. If I stopped learning just five years ago, Iwould have missed out on the Internet revolution, email, websites and the majority of the income I now enjoy.Keeping myself informed and up to date takes time andresources, but it helps me protect my current income andexpand my skills to help me earn income in other areas.This increases my stability by allowing me to not have torely on one client, employer or source of income. A chairwith four legs will always be more stable than a stool withonly three.GrowthThe next level of personal finance, as I alluded to before,is growth.Once you are secure and stable, you can begin to think aboutbuilding your wealth. Not that you have to figure out howto become the next Bill Gates or Warren Buffet. But youhave to start building the “nest-egg” that you will rely onwhen you retire.And don’t think that Social Security has you covered, orthat your 401k will grow back to what it was a couple yearsago. Or that your current employer is going to re-institutethe generous pension plans of yesteryear. 401ks are muchcheaper to administer and you, the employee, take the hitwhen the market goes down, not the employer.My father is nearing retirement age and I think he has agood plan. He has done some research and estimated what hisexpenses are going to be when he is retired. He then took alook at his potential sources of income during hisretirement.He figured that Social Security would cover about a third ofwhat he wanted to live on. Only a third! And he has workedhis entire life. Would you like to instantly have to liveon only one third of what you currently make? Retirement issuppose to be the golden years, so where’s the gold?Luckily throughout his career, my father has worked forcompanies that have had pension plans and he had worked longenough at each company to be eligible for some pensionmoney. This is rare these days because today the averageworker will change jobs and companies at least five timesduring his/her career. Also, as I mentioned before,companies are switching to lower cost 401k plans that do notguarantee you any fixed payments.In my father’s situation, his pension money would coveranother third of the retirement income he wanted. So now hehad to either figure out where the last third was going tocome from, or start cutting out expenses during retirement,like not visiting his children so much. None of us likedthe sound of that.So my father started learning about the stock market andinvesting in stocks and mutual funds. He made a plan forgrowing his wealth and then educated himself as to how hecould accomplish his plan.I wish I could say that he is doing better than he is, butluckily he has some time still to put his plan into actionand ride out any market downturns. (He can do this becausehe has the security of insurance and emergency money, andthe stability of little debt and a strong set of skills.)By learning about how stocks, bonds, mutual funds, indexfunds, options, futures, commodities, real estate and otherfinancial tools work you lay the foundation for growing yourwealth. You may start with just $100 in a bank CD, but asyou learn more and become more sophisticated, you can investin more and more opportunities.You will learn about how risk and reward are related, thatas the risk increases so does the size of the potentialreward. Just like at the race track, you’ll make more onthe long shot, but the odds are against it. Also you canlearn how to tilt the odds in your favor and protectyourself against risk.For those who are just starting out in the growth phase orwho want to dabble a bit before completing the other levelsof personal finance, my suggestion would be to look intoindex mutual funds. Especially no-load index funds (noinitial/sales fee).These funds are made up of the same stocks that make up thepopular market indexes like the Dow Jones, S&P andNASDAQ100. The costs are low because management is simpleand as a mutual fund you can invest a little at a time.Also they are easy to follow since you see them on all thenews shows and in the newspaper.Protection and ManagementThe final level of personal finance is the protection andmanagement of your wealth. Most people never develop wealthenough to need this level. But some of the concepts can beapplied to any amount of wealth you possess, $10,000 to$10,000,000.Part of the protection harks back to your will as wediscussed on the first personal finance level: security.With any significant wealth or valuable asset (your home,car, heirlooms, 401k, IRA, business, etc.) you will wantsome way of disposing of that asset upon your death.Whether it is go to go your family, favorite charity, orlocal church, if no one knows about it, “it ain’t gonnahappen”.As you start to accumulate wealth in excess of $350,000, youmay want to consult an attorney about creating a trust. Atrust is an entity that can own property and pass thatproperty to anyone you name in your will. Usually the trustis designed to provide income to children from the assetsthat are placed in the trust.The trust can survive you so that your assets and income maybe passed on to your children or next-of-kin withoutexcessive taxation and legal entanglements. Some stateswill take up to 55% of your assets as taxes when you passaway.Protection also relates back to insurance. Now it may betime to look at a multi-million dollar umbrella policy thatwill protect you from lawsuits designed to part you and yourwealth. You may now be a bigger target, so purchase a suitof armor.The management aspect comes into play where you may start toconcern yourself with taxation, ownership, distribution ofincome and possibly endowments to charities or othernon-profit institutions.You may hire a person or company to manage your wealth, oryou may choose to do it yourself. Most people who haveearned their wealth through the “sweat of their brow” havealready become adept at managing their assets. Somecontinue to personally manage their wealth because of theenjoyment or challenge it gives them.Others are ready to turn it over to a trustworthy manager(who only gets paid a percentage of your increase) andtravel the world, or sit on a beach and count the waves.Whatever your dreams for retirement (and why wait until youare 65), understanding the different levels of personalfinance and spending the time and resources to educateyourself will pay off whether you live next to Bill Gates orHomer Simpson.