The fundamental of achieving financial well being is making more than spending. So the first thing we should focus on how to spend less. Most of time we just buy something because we like it without considering if it is necessary, thus we end up piling a lot of stuff at home. day after day, we spent much money at our unawareness . Budgeting is a good way to monitor our monthly payment and avoid non-necessities. Usually, we could divided income into three parts: One for saving ,about 30% of income, one for living expense, the left over for investment. Part of our saving money deposit in the bank as emergency fund, roughly equals to 6 months home expense, including housing expense. if we do have spare money , we could pay down our mortgage to decrease our total interests we paid to banks. For example: $100,000 loan amount at 3% interest rate
| 15 years | 30 year | |
| Monthly Payment | $690.58 | $421.60 |
| Interest | $24,307.70 | $51,777.45 |
Table above shows that if we pay$300 more every month ,then we could save our $27,000 interest. Even though we only pay $100 more on principal ,we could dramatically shorten our payment term and lower our total interest payment.
Second , we should watch closely on our credit , not only the credit score, but also the possible wrong information on our credit report. According to Fact Act, every one has the right to get a free credit report annually on annualcreditreport.com. Keep in mind, credit score play an important role on our personal credit ability, if credit score below to 500, probably no lender will like to lend money to us . Well then how to maintain our credit score? Let’s first look at how the FICO score is calculated.
The chart shows 75% of the score comes from 2 parts: payment and amount owed. So if we want to increase our credit score, we should first review those two parts to see something needs to be fixed. Either way we could pay off the debt ,keeping our credit utilization less than 10%,even 5%, for example, we have $10000 credit limit, what we better use less than $1000 to keep our credit good, over $7000 will damage our credit score; Or we pay our monthly bill on time, no default or late. Other 25% of the score considers the newly opened credit account number, card open history, and credits on different fields, of which be careful not to open several new credit accounts in short time.
No matter saving or keeping good credit score , they can’t make our money grow, especially at such record low interest rate period. One year treasure rate is 0.08%,minus inflation rate 2.24%, That means $100 deposit in the bank, one year later it is only worth $98. Hence, investment is a indispensable step to personal financial well-being. we could invest our money in fixed asset, such as houses, warehouses ,or in stock market , such as buying stocks, even someone invest in digital money, such as bitcoin. Evaluating which market we should get in depends on our risk tolerance, investment period, etc.
At the end, don’t forget to protect our family from financial stress using all kinds of insurance. Most common is the life insurance .Compare to the complicated structured insurance, I prefer the term- simple and straight, by the way, much cheaper than structured products.