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Put Your Finances In Order

Avoid bankruptcy through proper money management.

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Q: I'm a 38-year-old woman in debt and not interested in filing for bankruptcy. I'd like more information on becoming secure with money management. How do I get my financial life in order if I want to start a business?

A: They say a journey of a thousand miles begins with a single step, so step right up. First, get yourself out of debt and, if need be, restore your credit rating. Here are some tips to help turn your financial life from red to black:

1. If you have credit card bills, never make just the minimum required payment. If you do, you'll be paying interest until kingdom come and it will take forever to pay off your debt. Instead, promise yourself you'll pay off anything that's gone at the end of the month, such as food, entertainment, vacations, gifts and so on. That way, you can prevent yourself from future credit woes and get your balance paid off faster.

2. Pay yourself first. Yes, you should pay off your credit cards before you start saving. After all, where else can you earn 18 percent guaranteed on your investment? But all payoff and no savings makes Jill a poor girl, so before you do anything with your money, save a little automatically. Whether you put away a few dollars from your salary each week or have a mutual fund draft money from your bank account, before you have a chance to spend it, put some money away. Properly invested (more on this later), you could amass quite a tidy sum after a while, both effortlessly and painlessly.

3. Forge on with your 401(k). Some people say the greatest mistake people make isn't properly investing their 401(k) savings. Actually the biggest mistake isn't investing at all. Many people believe they can't afford to invest in their company's 401(k) plan because they need all their money just to make ends meet. Before you give up on saving for retirement, consider that your investment is taken from pre-tax dollars. If you earn $25,000, are in the 15 percent federal tax bracket and contribute 2 percent to your employer's 401(k) plan, your annual contributions will be $500. Because contributions are made before taxes are taken out, the amount missing from your weekly paycheck will be about $9.62. Why bother? If your money earns an average annual return of 8 percent for 30 years, your 401(k) account could be worth $56,641. Now that's what I call quite a bother. If your employer matches all or part of its employees' contributions, not participating is like throwing money away-not a good way to get your finances in shape.

4. A saver and an investor be. About this idea of investing properly-there are about as many ways of investing properly as there are investors. Many neophyte investors make the mistake of trying to do it all themselves. A better, more efficient and potentially lower risk method involves using the pros. Mutual funds provide professional management and diversification for less than it costs to do it yourself. Before you invest, read the prospectus and remember that past performance isn't an indication of future returns.

5. Determine what percentage of your money to invest in stocks, bonds or money market accounts. As a starting point, subtract your age from 100 and invest that percentage in equities. While this approach is simplistic, at least it will get you started on the road to financial well-being.

Lorayne Fiorillo is a financial advisor and senior vice president at a major brokerage firm. She spent six years as the on-air financial commentator for EyeWitness News and 11 years as a market commentator for National Public Radio. She is the author of the new book, Financial Fitness in 45 Days: The Complete Guide to Shaping Up Your Personal Finances (Entrepreneur). She specializes in retirement and business planning for small businesses.

The opinions expressed in this column are those of the author, not of All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

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