Money Management is Simple: Don't Listen to the Noise

12.28.07 | Money | 4 Comments | by junger

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I like to read (and sometimes answer) the questions on LinkedIn (add me to your network) every so often, especially in the personal finance and Web development categories.

The other day, I ran into a great question with some not-so-great answers.

Money Management: They teach in school that best way to generate returns from capital is through proper money management. What is your money management method? How do you ensure that you are employing your savings profitably? What are the best ways to protect investments from market crash and along with saving taxes?

This question goes to the heart of managing your money.

How do you save? How do you ensure you're getting good returns on your money? How do you prepare yourself for highs and lows in the markets?

As is usually the case with LinkedIn questions, the people providing the answers are the ones hoping to make some money off of the question. There's nothing inherently wrong with that, but (as often happens) the answerers are providing poor information in hopes of making a buck.

Check out these answers.

From a Capital Market Professional: "I am afraid there is no direct answer. But there are mitigation possibilities. If you find the equity market has gone over board from medium / long term point of view, start moving moneys to fixed return investments (basically debts-deposits, etc)."

From a Manager Product Marketing: "Not having any investments takes away the sorrow of having to protect it. So I would say that proper money management is to spend it."

From the Owner of a Personal Wealth Management company: "Wealth Management - my thoughts though influenced by U.S. laws (eg. tax statues) are universal: [LINK TO WEBSITE]"

These aren't bad answers, per se, but none of them are truly helpful.

Money management isn't hard, and if you know the basics, you don't need to listen to the noise. Here's my answer to the question.

There are tried-and-true, easy ways to properly manage your money. You don't need to pay for someone to tell you these.

1) Spend less than you earn.
2) Pay yourself first.
3) Automate your payments and savings/retirement contributions.
4) Invest in index funds.
5) Diversify your investments — stock funds, bond funds and int'l funds.
6) Stick with it. Don't time the market.

On a side note, make sure you're getting the most from your checking/savings account. FDIC-insured online accounts often yield much higher interest rates than brick and mortars.

Most of these people are out there to make a buck off of you, but you don't have to be afraid of managing your own money. In fact, once you get the fundamentals down, you can even purchase investments that outperform the "professionals."

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