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SQLAndy

I'm Andy Warren, currently a SQL Server trainer with End to End Training. Over the past few years I've been a developer, DBA, and IT Director. I was one of the original founders of SQLServerCentral.com and helped grow that community from zero to about 300k members before deciding to move on to other ventures.

Managing Money

First, the usual disclaimer: I'm not a financial professional, so take all of the following with a grain of salt and back it up with some good reading and/or professional advice.

I'm often surprised at the many different ways people look at money. Not my place to say that any of them is wrong either! Instead, what I'd thought I'd do is list a couple positions I take on money because it's part of our industry that we have relatively young people (18-25) making very good money and from what I've seen, most schools don't seem to teach practical financial skills.

  • Rule #1 is to live within a budget. A budget should be based on what you earn, but that doesn't mean you spend it all. Ideally you're putting 10% into savings or a 401k. The key to a budget is it simplifies day to day life - can I afford to buy lunch today? If you have a significant other it also reduces the arguments about whether you needed/could afford that geek book/tool/new pair of shoes. Note too, if you struggle to stick to a paper budget, try a few months of the old fashioned technique of putting cash (the green stuff) into envelopes that map to your budget. No cash in envelope, no spend.
  • I've relied on Quicken for a long time. Pick a similar product if you wish, but being in the IT industry I hope you appreciate the value of having a custom built application that reduces to a minimum the time you spend managing money. I upgrade every other or every 3rd year.
  • Use cash/check card until you're living by your budget. Then..only then..should you move to credit cards. Credit cards are not evil if used well. My definition of used well is to charge everything I can and then pay the bill in full at the end of the month. I prefer Discover because their service has been good, you get a full 30 days to pay from the date the statement closes, and you get 1% cash back. In other words I use 1% for mastering a pattern of how I use my money. If you stick to your budget this is easy, but you can supplement it by downloading your transactions into Quicken and keeping a placeholder value in the register equivalent to your current monthly bill. In other words if your current balance is $999, you have an entry in the check register as if you wrote a check for $999. That's your safety net.
  • Revolving credit is evil, but sometimes necessary for large purchases - furniture, car, things of that size. For all else, work on being disciplined enough to save the money first and then purchase it. If you have to carry a balance on a credit card go for the lowest rate you can find and keep a separate card just for that, don't put in on the card you use for your pay at the end of the month charges.
  • Having money in the bank will reduce your stress level - an obvious statement I guess. Goal number one is to feel no pain if your check doesn't deposit on time/correctly. Goal number two is to be able to survive 30 days unemployment without tapping a credit line. Goal three is to have the option (not a good one mind you) to survive at close to current standard of living for 3-6 months unemployment using a combination of savings and credit.
  • If your employer matches 401k contributions that should be your first choice to use your 10% savings budget. If they don't or you can save more than 10%, start an IRA. Most 401k's will let you borrow the money back in an emergency, IRA's don't. Think of your 401k as the worst worst case safety net.
  • Investing is a tough nut to crack, but the easiest way is to put your money in a few different mutual funds. Do your homework first by looking at the loads (fees). Play the stock/bond market, day trade, etc, only if you are really willing to invest time into learning how it works and can afford to lose some money.
  • Buying a home is good debt. Homes appreciate over time and as long as you do your research on price and get a home inspection, it's hard to lose. This is for the one you live in. Speculate by buying other homes if you wish, but it's just like the stock market - expect to learn some hard lessons!
  • Spend some time learning about the credit scoring system and working to increase your score. Don't turn into a life long game, but a little work now could save you a lot of money over the course of a mortgage or two.

There's a lot more to learn, but maybe this will get someone thinking enough to go buy a financial book or two. Money doesn't equal happiness, but not having money doesn't guarantee it either. Learn enough about money to manage your daily life using a pattern, then the only time you need to seek knowledge is when you decide to go a step further - investing, home buying, retirement planning, etc.

 

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