The Handy Investing Answer Book. Paul A Tucci

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      About 54 million households in the United States have credit cards, and the average person has 3 to 4 cards.

      What is the difference between a debit card and a credit card?

      A credit card allows you to borrow money from a card issuer in exchange for paying the provider of the goods or service in full. You must pay off the balance of the purchase in full, plus any interest or fees charged during the statement balance period. A debit card deducts money immediately from an account (usually a checking or savings account at a bank), and therefore incurs no interest payments. The bank then sends you a monthly statement that shows all transactions cleared for the month on the debit card.

BUDGETING

      What does “living within your means” mean?

      Living within your means is defined as the amount of income you take in, less your taxes, is the same as the amount of money you need in order to live.

      What does the phrase “living beneath your means” mean?

      Living beneath your means is defined as the amount of income that you take in, less your taxes, is less than the amount of money you need to live.

      Why is budgeting so important to create wealth and financial success?

      If you are good at managing your expenses—spending less than what you bring in—you will find money left over each month, which can be directed to savings or investing. Living beneath your means is one of the most important keys to financial success.

      What must I do in order to live beneath my means?

      The answer to this is found within your attitudes about money and material goods, and your ability to postpone or do without certain items now, in expectation of getting some future payback as a result of your frugality. For example, you must decide that having a stress-free financial life—by driving a paid-for, ten-year-old car—actually feels better than the stress created by having to pay off a $20,000 loan to finance a brand new car.

      Why create an expense budget?

      You can create an expense budget so you may attain or reach some financial goal in the future, whether to save a certain amount of money for a future purchase, such as a house down payment, educational expense, a vacation, or a large appliance, or to pay down debt.

      How important is it to have a goal in mind when I decide to create an expense budget?

      It is very important to have a goal in mind when you create an expense budget. Visualizing the goal makes it much easier to check your progress toward that goal, and measure your progress, whether positive or negative. Having the end prize in mind—whether an amount, or an actual physical item you would like to purchase—makes the goal more tangible and, in the end, more easily attainable.

      What is a “budget”?

      A budget is the established limit of the amount of expected expenses during a defined future period.

      Setting up a family budget is an important step in keeping expenses under control and staying out of debt.

      What is “zero-based” budgeting?

      Zero-based budgeting is a method by which one accounts for the spending of every dollar of income from all sources. If any one category must be revised upward, another must be revised downward so the effect is zero on the total amount that is spent during the budgeting period. This way, your expenses can never exceed your income, if you stick to your budget.

      What are some steps in using a budget?

      The steps in using a budget are Goal Setting, Budgeting, Analysis, Monitoring Actual Expenses, Improving the Budget, and Adjusting Behavior.

      What are some typical family budget categories?

      Food (groceries, restaurants); Housing (mortgage/rent, property taxes, insurance, utilities, repairs); Clothing; Transportation (public, fuel, insurance, lease payments, car loan, rental); Health Care (including insurance premiums, co-pays, deductibles, prescriptions); Entertainment; Personal Care; Education; Communications (land line, cell phone, Internet, cable); Computers/Technology; Income Taxes; Pensions/401(k); After-Tax Investments/Savings; Charity; Life Insurance; Lawn Care; Credit Card Debt; Other Loan Payments; Hair/Salon; and Travel.

SETTING YOUR INVESTING GOALS

      What are some steps to establishing the right goals for investing?

      At the onset, you should be able to articulate the reason why you are investing in the first place. The reason for this is that by illuminating each reason, you can see why you are investing, and each activity’s time horizon. Perhaps your goal is retirement savings, so that you accumulate enough capital to fund your living expenses during your retirement years. Depending on your age at the time you invest, this goal could be long term. Perhaps you wish to invest your money to fund educational expenses that you may need in a few years. This reason to invest may have a short- or medium-term time horizon, and would require different strategies and risks. It is good to have a clear expectation in terms of what returns you would like to see, perhaps on an annual basis. You must decide what percent return you wish to obtain, and what you are willing to lose during this term. As in all complex projects, it is good to divide your goals into attainable subgoals. You should begin investing in choices that you understand, and that match your competency. You also need to have a clear understanding as to how much time you should spend managing your investing activity, as some investment choices may require you to spend more time researching, reading, and deciding than others.

      What is another important step in setting my financial goals?

      You should understand that to be successful at investing, you must have a clear picture of where you are today, a snapshot of your financial picture. This analysis is not difficult to perform, but it does require some time. If you know where you are today, then you have a value with which to compare your investing strategies and to measure how they contribute or detract from your goals and objectives.