Most people will admit that they do not completely understand finances, and are not able to grasp the concept of money management.  Money management is a difficult topic to discuss with most people, because people are overwhelmed with many common issues.  In this post, I’m going to go over the first area that you must understand when it comes to your money – taking control of your income.

Let’s take a look at credit cards, first and foremost, what people do not understand is that credit is a good thing; when used properly, and it is a highly effective tool that can be maximized throughout the course of your life.  Credit establishes credibility, and it shows lenders that you are a viable source.  Managing your credit provides a statement that you are able to not only balance a checkbook, for you are able to manage your life.  Credit cards are used to replace fiat money when there is an emergency, and/or when you  need to establish documentation that you are able to meet your obligations.

When managing credit, it is important to aim for 30% utilization on your cards, so that if you have a $1,000 limit – only use $300.  What this does is it shows that you are able to maintain a healthy balance between what has been allocated, and what has been used.  This also helps you in many ways.  First, most credit cards want to increase their limit with you, so maintaining a 30% usage will allow them increase the limit later.  Using 30% also increases your credit score, for it shows that you understand debt and obligations.  The 30% usage is the target amount that creditors look for when it comes to managing your debt-to-income ratio.  Focus on making purchases that can be easily paid off within the month, or within two months.  It is everyone’s goal to not carry debt, and it is not a bad policy.  Nevertheless, carrying some debt can be beneficial to your financial future.

Next, set aside some money from each paycheck to pay yourself first.  You may have heard the term, “Pay Yourself First,” and its the first step to building financial wealth.  It should be a goal of yours to be able to put away 20% of your income towards debt/savings.  If this is a difficult hurdle, which it may be a big jump, start with a small increment, and work your way up to 20%.  Try putting 5% into an online savings account each paycheck, which pays anywhere from .40% to 1% annual percentage rate, and in time you can move the money around as you need.  It will allow you to create a few avenues towards stability.  Your commitment to saving each money will allow you build an emergency savings fund, vacation fund, and an investment fund.  An emergency savings fund should have enough money to cover your expenses for 8 – 12 weeks if you lose your job, become ill, and when unforeseen expenses arise.  This is one of the most important things you can do with your money immediately.

Some of the most popular online savings banks are –

Ally Bank – www.ally.com

Capital One – www.capitalone.com

First National Bank of Omaha – www.fnbodirect.com

Additionally, these banks offer other services, such as CD’s, IRA’s, Auto Financing, and Home Lending.  Establishing an account with these banks early on creates a relationship that may allow you to obtain a loan later in life.

Lastly, many companies offer an employer-matched 401k program that allows you to gain free money on top of interest, and it is a wise decision to commit to your employer match from the start.  As your income and skill set grows with the company commit 2% every year or every other years.  It is a goal to maximize your 401k each year, which is $15,500, and after speaking to many well experienced workers, all of them say they made the mistake of not maximizing their 401k early in their careers.  To the beginning employee, $15,500 can mean 30% of your salary goes right into a retirement account, and it is not feasible to do this, so if you can put this plan into steps; you will reach your goal as you grow.  Additionally, pay attention to what the company has to offer with its holdings.  Many 401k programs are managed by a third party, so you only have a few options that you are able to invest.  Take a look at what those holdings are, and do some research.  There may be two mutual funds that look exactly the same on paper, and when you look into them, you will find the holdings are very different.  One fund may specialize in healthcare, and the other in technology.  For the average investor, simply take a look on Yahoo! Finance, and see which sector is performing better, and allocate a certain amount of money into that area.

If you are unsure what to look for – here is a link to a PRIMECAP Odyssey Growth Mutual Fund – http://finance.yahoo.com/q/hl?s=POGRX+Holdings

They have posted higher than average growth over the past few years, and you can see what their holdings are within the fund.  Most 401k providers carry this holding, and it is an easy way to allow your money to work for you.

Remember, only you can control your money, and if you can’t control your money; you can’t make money.  We all are given the same opportunity with work, and with our future.  It is up to us to cultivate, develop, and manage our futures.  Warren Buffet has been quoted as saying, “If you can’t control your emotions, you can’t control your money.”  Learn to invest in yourself, and learn to live below your means.  Take control of your money, or it will control you.