Personal Finance Advice

At this point you probably fall into one of three catgories of people with regards to your personal finances:

1.  You are having a significant amount of financial problems.

2.  Although you are still maintaining your finances and paying your bills, you are starting to realize that you need to make some changes to your spending soon or you’ll be in trouble.

3.  You can still manage all your finances well, but you have definitely noticed that your money doesn’t stretch like it used to.

Hardly anyone has managed to get through the recent economic climate without noticing a pinch on their finances.  At the worst, some people have encountered a full-blown financial emergency and the people who are in the best case scenario are very fortunate to have - so far - remained unscathed by the recession. 

Here is what you need to know: If you have managed to not really notice much of a difference with your personal finances, this does not mean that you can go along with business as usual with how you spend your money and manage your debt.  Never mind that many wealthy people are toning down on their luxury spending simply out of respect for what the other people in the country are going through; you should be scaling back on your spending because you just can’t be sure of what is going to happen next.

Most importantly, you need to take a hard look at where your finances stand right now.  What would happen if you suddenly lost your job? What would happen if your car broke down and needed costly repairs? You need to know where you stand right now so that you know whether you’re prepared for the future, whatever it is that the future may bring.

Review these things to find out the status of your finances:

Your debt.  You might be easily managing your debt right now, but what happens if you suddenly find your hours cut at work and you’re making half of what you used to make? Will you still be able to manage your debt load?

Your savings.  You should have enough money in the bank to cover your expenses for a little while, but even if you only have a couple of thousand dollars sitting in an account it’s certainly better than nothing.

Your spending.  Are you spending too much money for things you don’t really need? Curb your spending to better prepare for whatever the future brings.

Although you may already have a pretty good idea of what your financial standing is, keep in mind that there is almost always little things you can do to save some money and better prepare yourself for an unexpected financial emergency.      

Some people take a second job out of financial necessity while others do it because they want to try their hands at something different without sacrificing their full time job.  Plenty of folks are pleased to find that a hobby evolves into a money making venture, but if this new development comes as a surprise then the situation may leave a person wondering what should be done with this extra income?

You have a few different options when it comes to what you do with additional money that comes in, yet you didn’t necessarily expect to have:

Save it.  Setting the money aside is a good idea, especially if you don’t really know what you want to do with the money.  You can’t go wrong with placing the money into an interest bearing savings account until you decide where the money should actually go, although in some instances you may make the final decision that the money is just fine where it is.

Use it.  A second income can be a fantastic way to start chipping away at debt.  Since the money isn’t coming out of your primary income, you won’t even notice that it’s gone and you will get your debt paid off faster.  Even small amounts of money from a second income can have a huge impact on the length of time it takes you to get your debt paid off.

Multiply it.  If the second income stems from a business venture, you may decide to invest the money back into the venture in an attempt to increase your income exponentially.  Maybe you want to pay for some advertising or purchase some additional tools.  Whatever the purpose, using your additional income to further enhance your income potential can be a good idea.

Enjoy it.  If you don’t usually allow yourself to indulge in the niceties that come with entertainment expenses, then consider granting yourself the ability to use your second income as “Fun Money.”  Just keep in mind that at some point you may make too much money from your second income to justify wasting it all on frivolities.

Save a portion for tax purposes.  Placing around 25% of your second income in an account specified for taxes is a good idea.  You may not wind up owing any taxes at the end of the year on this income - especially if it isn’t substantial - but you need to keep in mind that second incomes are taxable so you need to be prepared. 

There may come a time when you have to allow someone else to handle your finances.  Military personnel sometimes have to entrust someone else with their bills and other financial concerns when they go on a remote deployment.  People who are hospitalized for long periods of time may have to allow someone else to handle their finances until they are well enough to deal with it themselves.  Some people allow their adult children to take over their finances when it becomes obvious that they can no longer actively manage their own money.

Whatever the situation, allowing someone else to take over your finances – whether temporarily or permanently – is not a decision that you should make lightly.  In fact, it can be easily argued that the biggest decision isn’t allowing someone else access to your personal finances, but instead is who you allow access to your personal finances.  Granting full access to your personal finances to someone who does not have your best interests in mind can be devastating.

A prime example of this is a situation when you give someone else a Power of Attorney in order to manage your money for you.  A Power of Attorney essentially lets someone else act on your behalf.  There are different kinds of POAs, but if you grant someone a general POA this person can then turn around and access your bank accounts, open new credit lines in your name, and generally do whatever you can do on your own with regards to your money.  While some financial institutions may require additional documentation beyond a simple POA, in many instances all a person needs is a valid Power of Attorney in order to cause some real mischief.

This is certainly not to say that giving someone a Power of Attorney will always wind up causing a financial disaster.  A POA is a necessary step to take when you need to allow someone else the power to manage your finances for you.  The important thing is to remember that you should be incredibly picky with who you give access to.  While it is a good idea to give your spouse a POA before leaving for an extended trip or going into the hospital, it is not a good idea to give your buddy a POA when you don’t even know how he manages his own finances.

If you need to have someone else handle your finances for a period of time, but you don’t have anyone around you who you can truly trust to take care of your money, consider hiring someone from a professional agency to manage your money for you until you can deal with it yourself.