What Are the Rules to Becoming More Financially Wise?

Many Americans are bent on becoming wealthier, while it sounds like a great and even easy idea, there are certain things you need to watch out for. The purpose of this article is not to help the rich get richer, but to help American citizens become more financially wise and make choices which will eventually protect and help their financial futures.

One important tip goes out to homeowners. Many homeowners plan on selling their home in order to gain equity and are also hoping and expecting a better return on their investment. According to CNNMoney, it is a better idea to renovate the bathroom rather than the kitchen. Apparently, the return on bath renovations is 102% of its cost. Kitchens may add about 90% of their costs to the home's value. Also, home owners are encouraged to invest in window replacement. This job returns 90% of its investment as well as saves on energy bills each year.

Another tip is to refinance your mortgage if it means cutting your interest rate by at least one point. It often seems unnecessary to refinance when the fees towards brokers are so high, however, lowering that interest rate ends up paying itself off. A lower monthly bill is often not worth the higher interest rate or additional expenses that refinancing generates, especially if you are planning on moving soon. The important questions to ask when considering refinancing are; will you be relocating soon, will you need a bigger house in the next couple of years?

Another tip is to spend no more than 2.5 times your income on a home. Down payments should be at least 20% of the cost. If your down payment is smaller than the traditional 20%, most lenders will require you to have private mortgage insurance which adds a half percent of the loan amount to your mortgage payments. This will lead to about $1,000 each year. It is also highly recommended to not higher a roofer, driveway paver or chimney sweeper who does business door to door. They most likely lack licensing and insurance which could mean you will end up paying their hospital bills if they get hurt. It is a better overall investment to research and get recommendations from friends, neighbors and relatives. Also, it is best not to put more than 10% down on the job. Payment may be offered gradually as the work is done and 25% can be withheld until you are satisfied with the project.

Another important guideline is that if you don't understand how an investment works, don't buy it. There is a vast array of investment products available, it is better to invest in two index mutual funds-one stock and one bond. It is also highly recommended to save more than 10% of your salary. Saving money is something many Americans struggle with, but by saving more than 10% the money will grow and be available in the event of an emergency. It is recommended to start saving 30% a year for retirement over the age of 50.

Another valuable tip is to keep three months' worth of living expenses in a bank savings account. You never know what emergency may come about and it is definitely helpful to have a savings that you can live off of if necessary. Another tip is to aim to accumulate enough money to pay for a third of your kids' college costs. The rest can be paid in loans, however, tuition is rising and it is important to start college funds as early as possible. It is also noted that a third of your kid's college may not seem like enough, however, the kid will have more options when the time comes, such as loans and a job. Also, financial experts recommend going to a less expensive school and still attaining an excellent education.

Another important tip is that the best credit card is a no-fee rewards card that you pay in full every month. IF you carry a balance, high-interest rates will wipe out the benefits. Credit card debt is some of the worst debt to have, the interest rates often outweigh the benefits and they should only be used in emergencies. Penalty fees are on the rise for credit cards and they are often not worth having the card. When using a credit card, anticipate paying it off in full to avoid higher interest rates and spending more than you had ever intended or anticipated.