4 'Must Do' Money Moves to Achieve Fiscal Fitness: LearnVest's CEO Makes It Simple

Alexa LernVestWhen it comes to managing your money, there are many roads to long-term financial security. The best route for one person may be quite different from what's right for another. But whatever path you follow to fiscal fitness, there are some mandatory steps everyone ought to take along the way.

Alexa von Tobel, CEO and founder of financial planning site LearnVest.com, cuts through the thicket of advice out there to guide you through her essentials to sound money management.

1. Keep Track of Where Your Money's Going

This may sound obvious, but far too many people fritter away their hard-earned cash because they're fuzzy about how much they take home in their paychecks, and precisely where the money goes afterward. The first step to financial stability is getting a handle on how much you have coming in, and precisely what your expenses are. "Organization is half the battle," von Tobel says.

LearnVest offers a free My Money Center tool where users can link all their accounts in a single place, allowing them to see precisely what they're spending in one place, and rapidly calculate down to the penny where their money is going.
(Sites such as Mint.com and ReadyForZero.com offer similar free services.)

2. Cut Your Personal-Finance Pie Into the Right-Sized Slices

Once you've determined where your money is going, it's important to adhere to some guidelines on what you should be spending in order to maintain, build -- or restore -- financial security, von Tobel says.

• Fixed Expenses --
50%: According to what von Tobel calls "the LearnVest method," you should spend 50% or less of your take-home pay on basic living expenses, which include mortgage or rent, utilities, transportation -- be they car payments and gas, or mass transit expenses -- and groceries.

Whenever possible, she says, "live under your means."

Within that figure, make sure the slice of the pie devoted to your mortgage or rent is no more than 30% of your take home pay -- and, once again, it's better if it's less.

Taking on housing costs that are too high is a common cause of personal-finance troubles, von Tobel says. Indeed, an excessively large mortgage "can ruin a person's finances for the next five, 10 or 15 years," she says. So opt to buy that smaller house or rent the apartment in the less-cool neighborhood if it means you can stick to the 30%-and-under rule -- which will give you more financial wiggle room and security in the long run, she says.

• Pay Debt, Save For Retirement, Build An Emergency Fund -- 20%:

About 20% of your budget should go toward longer-term fiscal goals. If you have debt, whether it's from credit cards, student loans or something else, make paying it down a high priority, she says -- but not the only one. (More on debt below.)

Some of that 20% should be put toward building an emergency savings fund that could cover at least "nine months of what your life costs you," she says. That's not a number picked out of the air: On average, a well-educated person who loses their job will take about nine months to find a new one, von Tobel says.

If you can build a bigger cushion, all the better. Stash that money away in a high-interest savings account. "It's the thing that lets you sleep better at night," she says.

But make sure you're actively saving for retirement. If you're company has a matching 401(k) plan, make sure you're "taking [full] advantage of that first -- it's like free money," von Tobel says.

Additional money should be funneled into a retirement account, preferably a Roth IRA, she says.

If your employer doesn't match 401(k) contributions at all, von Tobel suggests you flip the equation: Max out contributions to your Roth IRA first -- the limit in 2012 is $5,000 a year -- and then focus on your 401(k).

Whatever is left over should go toward the big goals, such as saving up for a home down payment, or putting aside cash for your children's college tuition, she says.

Check out LearnVest's "Start Saving for Retirement Now" link to help you find a retirement account that fits your needs.
If you happen to be happily debt free, put that portion of your money toward savings.

• Choices: 30%:

The final 30% of your budget should go to what should be considered "choices -- eating out, travel, shopping, a housekeeper," von Tobel says.

3. Slay Your Debt

It's no secret that debt can wreck havoc on your financial stability. So if you're carrying a big balance on credit cards (and many of us are -- the average American woman has $9,000 sitting on her plastic, von Tobel notes) pay it down." In order to have a great credit score, the total amount you owe should never exceed 30% of your available credit," she says.

Money gurus advocate several strategies for how to organize your paydown. Von Tobel's is straightforward: Tackle the debts with the highest interest rates first, and work your way down.

• Know Your Credit Score

Understand that one of your most important numbers is your credit score, which is how lenders evaluate your financial responsibility and health, von Tobel says. You can check your credit score for free on CreditKarma.com. Never pay a fee to check your credit score, she says.

• Rethink Your Credit Card Use

Be judicious about pulling out the plastic. Von Tobel recommends this simple rule of thumb: "Don't use credit to fund parts of your life that you can't afford."

Know the difference between good debt, such as student loans, and bad debt, which includes credit card balances, von Tobel says. Prioritize paying off bad debt.

Own no more than three credit cards, she says. And don't be tempted to sign up for a store credit card just to get 25% off that cool top you've been ogling. As a general proposition, store cards "are one of the worst things" you can sign up for, she says. They have significantly higher interest rates than general-purpose credit cards -- about 20% and up -- so stay away from them.

4. Get Insured

Having the right insurance is more than just a matter of health insurance: You should have a renters or homeowners policy that will make you whole in the event of catastrophe. Don't just hope that floods, fires and other disasters won't happen to you -- get protected. And if you're driving around without car insurance -- even in one of the few places in the U.S. where it isn't mandatory -- get yourself covered, soon.

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February 07 2012 at 4:06 AM Report abuse rate up rate down Reply

Worried that the Federal Reserve and the U.S. dollar ARE on the brink of collapse, more than a dozen states have proposed using their own alternative currencies of silver and gold. ---NEW YORK (CNNMoney) -- Lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.

"In the likely event of hyperinflation, depression, or the breakdown of the Federal Reserve, State's governmental finances and private economy will be thrown into chaos," said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.

Unlike individual communities, which ARE allowed to create their own currency -- as long as it is easily distinguishable from U.S. dollars -- the Constitution bans states from printing their own paper money or issuing their own currency. But it ALLOWS the states to make "gold and silver Coin a Tender in Payment of Debts."

February 04 2012 at 5:28 PM Report abuse rate up rate down Reply
bruce g johnson

a high interest savings account ???

January 30 2012 at 12:43 PM Report abuse rate up rate down Reply

The "petrodollar" system was a brilliant political and economic move. It forced the world's oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount - the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

There is another downside, a potential threat now lurking in the shadows. The value of the US dollar is determined in large part by the fact that oil is sold in US dollars. If that trade shifts to a different currency, countries around the world won't need all their US money. The resulting sell-off of US dollars would weaken the currency dramatically.
Got gold?

January 30 2012 at 10:25 AM Report abuse rate up rate down Reply

I suppose I shouldn't be surprised at the relative lack of useful comments on this article. We would rather comment ad nauseum on the latest celeb scandal than address something that truly affects all of us everyday. If you were accused of "living below your means," would there be enough evidence to convict you? Probably not. Most of us won't even live WITHIN our means, much less BELOW. Translation--we have running credit card debt and are NOT paying it off in full EVERY month.

I have tracked and managed every DIME of my expenses since I was 16, now 63. (It takes all of 5 minutes a day to be totally in control of your finances). I have paid off every credit card bill IN FULL every month of my life. (My credit card limits do not determine whether I can afford something.) The only debt I have is a very low-interest mortgage on a house I can easily afford.

Yes, I've gone without some of those "very important" items I thought I needed sooo very much. Now that I can afford them without batting an eyelash (because I managed my spending), I have better things to spend my $ on--like charities I believe in or gifts to my children and grandchildren. I am so proud of my 2 kids--they learned how to manage their $ very early, and they continue to do so as adults. What a blessing, both to them and to me and their mother! That and their spiritual riches will bless them all the days of their lives.

And don't hit me back with your sob story. No matter what your circumstances, I bet you could have done a much better job of managing whtever $ came into your hands over the years.

January 30 2012 at 9:10 AM Report abuse rate up rate down Reply

It's too bad that our government officials can't practice these methods as well and we wouldn't be in fiscal disaster the nation is experiencing.

January 30 2012 at 8:23 AM Report abuse +2 rate up rate down Reply
2 replies to janswizz's comment

Excellent point.

January 30 2012 at 9:12 AM Report abuse -1 rate up rate down Reply

Excellent point.

January 30 2012 at 9:13 AM Report abuse -1 rate up rate down Reply

really...Here in the NYC metro area with the new screwed up pay scales allowed by union contracts our new employees are lucky they make gross 500.00 a week...A decent 1 bdrm rental apt in NYC metro is 1000-1200 in Manhatten itself over 2200....

January 30 2012 at 4:03 AM Report abuse +1 rate up rate down Reply

And dont vote for Republicans.

January 30 2012 at 12:16 AM Report abuse rate up rate down Reply
1 reply to bcheerful3's comment

And how is your dem prez doing for you now? Are you enjoying the Hope and Change he brought??

January 31 2012 at 6:45 AM Report abuse rate up rate down Reply

Stash that money away in a high-interest savings account. "It's the thing that lets you sleep better at night," she says.

And just where is that High-interest account????????????????????

January 29 2012 at 10:40 PM Report abuse +2 rate up rate down Reply
1 reply to SPQR's comment

Send your money to my Swiss Bank. Your account number is .......... 1.

January 30 2012 at 6:20 PM Report abuse rate up rate down Reply

Tehran Pushes to Ditch the US Dollar

India and Iran are negotiating deal to trade oil for gold. Does this matter, you ask? It strikes at both the value of the US dollar and today's high-tension standoff with Iran.

Officially the US & EU is Tehran must be punished for efforts to develop a nuclear weapon. Sanctions on Iran's oil exports meant to isolate Iran and depress the value of its currency to a point that the country crumbles.

Sanctions will not achieve their goals. Iran is far from isolated and its friends - like India - will stand by the oil-producing nation until the US backs down or acknowledges the real matter the American dollar as the global reserve currency.

In the 1970s a deal cemented the US dollar as the only currency to buy and sell crude oil, and from that monopoly on oil trade with the US dollar as the reserve currency for global trades in most commodities and goods. Massive demand for US dollars ensued, pushing the dollar's value up. Countries stored their excess US dollars savings in US Treasuries, giving the US government a vast pool of credit.

If the US dollar loses its position as the global reserve currency, the consequences for America are dire. The dollar's valuation stems from its lock on the oil industry - if that monopoly fades, so too will the value of the dollar. Global fiat currency relationships will change. Gold will rise. Uncertainty around paper money always bodes well for gold, and these are uncertain days indeed.


January 29 2012 at 5:39 PM Report abuse +2 rate up rate down Reply