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Personal Financial Planning 101

How to take those first steps in dealing with your money issues

by Jane Bryant Quinn, AARP Bulletin, June 2015

JBQ: Personal Finance 101 - Financial data analyzing. Counting on calculator.

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Need help getting your money matters under control? Start with getting your records together.

En español | How do you learn about personal finance? This question came from a reader tussling with money issues that were new to her. You can pay the bills and manage a checking account for years without ever having to confront planning and investment issues.

From a distance, those issues look mysterious, even impenetrable. Anyone with math anxiety shies away. But personal finance is not — not! — about math. If it were, I'd be in a different line of work. I'm terrible even at arithmetic (embarrassing but true).

 

Resources for You

  • Take courses through sites such as Coursera. There might be personal finance or investment courses at your community college, too.
  • Gather the basics from the National Endowment for Financial Education, AARP, Kiplinger and others.
  • Find free investment information from the big consumer-oriented mutual fund groups: Vanguard, Fidelity and T. Rowe Price.
  • Hit the books. You might start withPersonal Finance for Seniors for Dummies, the e-book Investing for Retirement: How to Make Good Choices Without Getting a Ph.D. in Finance (from Nolo), and my own book, Making the Most of Your Money NOW. Check the sections on simple, low-cost mutual funds.

Successful personal planning depends on old-fashioned common sense. That means listing your priorities in life and using super-simple financial strategies to get you there. You don't even have to think about investing your savings until you've figured out the basics. And forget about the complex stuff, like variable annuities. You never, ever have to consider an investment that's complex. Believe me, it will cost too much and won't accomplish what the salesperson says. I have relied almost entirely on bank accounts and the low-cost mutual funds called index funds — and I've done just fine, thank you very much.

To get started on your financial plan, get your records together. Create separate files for bank statements; insurance policies; the latest reports from your mutual fund company or brokerage firm; statements from your pension, annuity or retirement plan; records of any other source of income you receive; and a list of your debts.

People who have been single for a long time usually have a handle on their money. The problems arise when you're married and your spouse has always managed the money. Sit down with him (sadly, it's almost always a him) and go through the files one by one. He can tell you what he's been up to. If you have consumer debt, what's the plan for paying it off? How has he been investing the retirement savings, and why? If your spouse isn't organized himself, now is the time to find out. You especially need to know how much income you'll have from Social Security and savings if he dies first, and what kind of lifestyle it will support. If he has life insurance, check the annual statement to learn how long the policy will last (not all insurance lasts for life).

If you're widowed, you can leave his arrangements in place while you figure out what you want to do. While you're learning, put any life insurance proceeds in the bank. For higher interest rates, check online banks such as Ally and Synchrony, both FDIC insured.

While you're at it, find out where your money goes. If you don't have a working budget already, go over your bank statements and bills to see how much money is coming in and going out. This will take time, but without this information it's not possible to plan. If too much money is going out, well, you know what to do.

Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW.