Financial ABCs for Artists, Part 2

“Formal education will make you a living. Self-education will make you a fortune.” - Jim Rohn

In my previous post, I talked about learning basic financial terms as a way to gain confidence about your finances.

Another thing that helped me was to give myself a crash-course in personal finance. I spent a little bit of time every day focusing on a particular subject - like mortgages, or IRAs. I’d study each one that I was interested in until I had a basic grasp of what they were about.

Beyond the definitions, and beyond making money itself, here are the basic actions most financial experts agree we should take:

1. Get health insurance.

2. Don’t spend more than you earn. Avoid credit cards whenever possible - pay cash or use a debt card instead. Even if you pay off your credit card every month, studies show that people spend 12-18% more with credit than they do with cash. (That’s why McDonald’s started accepting credit cards!) 

Establishing financial goals is also a good idea. Do you want a house? A car? Want to retire comfortably? Setting inspiring goals might stop you from buying that $40 concert T-shirt.

3. Keep a budget. Write down how much money you earn every month. Then write down how much you spend, including the little things, like that Dunkin’ Donuts coffee. $3 per day seems like nothing until you realize that’s $1,095 a year. Multiply that by 20 years - that’s almost $22,000! And that doesn’t include interest earned from investing.

4. Save three to six months worth of living expenses in an emergency fund. Create an “emergency” savings account, and deposit money there automatically & electronically every month. (Dave Ramsey suggests beginning with a $1,000 emergency fund as an initial goal, then building from there.)

5. Pay off all debts, smallest to largest. All that extra money you’re paying in interest to your credit card company could be invested in your personal savings.

6. Open a retirement account as soon as possible - an IRA or Roth IRA (there are several types) through a broker like Fidelity. Put the same amount of money in there every month (”dollar cost averaging“). Do this as soon as possible to take advantage of time and compound interest.  Again, make it automatic through your bank & broker. Once your retirement account is open, invest the money in mutual funds. What type of mutual fund(s) you invest in depends on your age, goals, and the amount risk you’re willing to accept.

These are the basics…again, just a few of the ABCs. There’s obviously a lot more to it, but the idea is to begin some of these simple steps if you haven’t already. 

If you have helpful tips or thoughts to share, leave a comment!