Who: This post is for finance newbies and folks who get eaten up by fees.
What: This post will outline two basic concepts in finance, budgeting and minimizing fees. Read the other two parts of this series: ‘The Basics II: Responsibility and Psychology‘ and ‘The Basics III: Opportunity Cost and Risk/Reward‘.

So, you’re ready to make your first million and you’re drooling over the prospect of being rich… Not so fast, it’s not an easy process. There are a lot of steps necessary to revolutionize your finances. I will start with a discussion of the most important ones here. Remember that a lot of these points are quite complex, and this is just the beginning of the discussion. These points will be the topic of many future posts, so stay tuned.

1) A Budget - Yes, you read this one correctly. The first step in A Financial Revolution is to create a budget. What’s that noise I hear? It sounds like the bleacher bums, at Yankee Stadium, when A-Rod is at the plate, after he has struck out 3 times already, and then strikes out a 4th time. Don’t boo just yet, it’s not that bad. Creating an effective budget takes at most 15 minutes a day and if you have a good memory only an hour or so a week. So, why do you need a budget? I will use this opportunity to try something I haven’t ever tried before. Using a bulleted list on my blog software.

  • A budget will help you keep track of what you are spending your money on. “But William, I already know what I spend my money on.” Well, good for you, but seeing it all in one place will give you a more concrete view and 9 out of 10 people (The 10th guy needs a little more convincing) are surprised at how much they spend on certain things.
  • A budget allows you to identify areas of excessive spending and places where you can cut back, saving you a ton of money in the long run if you can identify your problem areas.
  • When taking on new expenses (making payments for that new car or when you have a new girlfriend) , a budget allows you to identify what your new spending level will be more accurately and will also allow you to make specific cut backs in those areas to make room for the girlfriend, I mean spending. (Just kidding, I like my girlfriend.)
  • Budgets help you know your limits and give you tangible spending limits so you don’t go crazy.

Need help creating a budget? Want some ideas of how to do it? Stay tuned for plenty of posts on budgeting… (C’mon this is just an overview)

2) Fee Optimization - This one’s very important. Wherever you turn, people will be offering you financial advice and financial services, for a price. An important key to protecting your money and investments is to be wary of these fees and to minimize them whenever possible. Sometimes you have to dish out the cash for things, but most of the time you don’t. Places to look for cutting down on fees:

  • Bank Fees - If your bank charges you for a checking account, it shouldn’t. There are a plethora of banks that will give you FREE checking with very little hassle. Ask your bank to switch you to a free checking account. If they don’t, switch banks. This also applies to online banking. You should be able to bank online without being charged a fee. Find a good bank. Account maintenance fees are a scam. Do what you can to avoid them as well. If there’s is a minimum balance, keep that balance, if you can’t, find another bank.
  • Credit Card Fees - Unless the rewards you get AT LEAST pay for themselves, there is VERY little reason to have a credit card with an annual fee. There are plenty of cards that don’t have one. For most people, there is NO reason to have a credit card with an annual fee.
  • ATM Fees - It kills me to see people paying $2.00 every other day to take out $20 from an ATM machine. There are SO many ways to avoid this. Take out a larger sum, and keep some in your wallet and some hidden somewhere else so you can get the money when you need it, so you don’t have to make half a dozen trips to the ATM every week. An even better idea is to find ATM’s OF YOUR OWN BANK so you can hopefully withdraw money fee-free.
  • Trading/Investment Fees - These are the biggest investment return killers. When you invest, more times than not, you’ll be charged commissions and fees. For mutual funds, you are charged an annual expense ratio and/or upfront fees when you invest in the fund or redeem your shares. For ETF’s and stocks, you’re charged brokerage commissions and maybe more. For fund investors, stay away from mutual funds that have LOADS unless you’re very confident that the premium you’re paying for owning the fund will pay off. Look for low expense ratio funds. For consistent stock traders, look for places that have lower commissions on trades, or look for a place that charge a monthly fee for a set number of trades (if you make enough trades, this should be ok).
  • Subscriptions - Cut out recurring subscriptions for things you don’t need! Costs add up!

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