Developing Good Financial Habits

"Too many people spend money they haven't earned to buy things they don't want to impress people they don't like."
- Will Rogers

Watching out for your own personal financial security should become a habit for you. Below are some quick suggestions that will place you on the trail toward good financial habits.

1) Get Insured

• Hospital and other medical bills can bankrupt you if you’re unfortunate enough to have a serious illness or injury. Protect yourself with health insurance. Generally, employer-provided insurance is less expensive than insurance you get on your own, so if you can, take advantage of what your employer has to offer. Either way, get covered.
• If you rent, purchase renter’s insurance. Your belongings are not covered by your rent in the case of theft or fire. Only renter’s insurance that you purchase can do this.

2) Pay down debt

• Be smart about reducing debt – use your savings to pay down high interest rate debts. "The reason is simple: You can 'earn' more by paying off a loan than you can by saving and investing. Paying off a credit card that has a 17% interest rate is equivalent to earning 17% on an investment – an extremely attractive rate of return" (Kobliner, 1996).
• Pay off the debt with the highest interest rate first, not the debt with the largest outstanding balance. Once it is paid off, put extra money toward the next highest rate debt – and so on and so forth.

3) Contribute to a 401(k) plan

• It’s not too early to think about retirement savings! The earlier you start, the better, because your money has more time to earn and compound interest. For example, say you’re 25 and plan to retire at 55. That’s 30 years of potential savings. If you invest just $100 per month in an account that earns an average of 10% interest for that entire 30 years, when you’re 55 you’ll have $226,000 in your account. If you wait five years and begin investing when you’re 30, your money will only have 25 years to earn interest, leaving you with $132,700. The $6000 that you could have invested along the way would have earned you more than $87,000 in interest over the life of the investment.
• Many employers have 401(k) matching programs – they’ll match you up to a certain percentage of your salary. THIS IS FREE MONEY. At the very least, contribute an amount equal to the maximum your employer will contribute. You’ll double your savings!

4) Stop paying huge banking fees

• Shop around for banks that offer free checking if you sign up for direct deposit or keep a minimum balance. It can save you a bundle.
• Shop around for banks with lower ATM fees.
• Plan ahead so you don’t have to use the ATM as frequently, cutting down on the charges you incur.

5) Use automatic savings plans

• One of the many who has a hard time saving? Start an automatic savings plan. Funds are electronically transferred from either your paycheck or your checking account to a savings account on a regular basis. It’s direct deposit for your savings. No further thought required on your part.

6) Invest in stocks and/or mutual funds

• The more aggressive stock market has a chance for a higher rate of return. Once you’ve saved and made some other, safer investments, it’s time to branch out and let your money work for you.

7) Consider buying over renting

• Depending upon how long you plan to stay in your current community, it may make sense for you to buy a house or condo rather than rent. Visit www.homefair.com for a rent vs. buy calculator.
• Homeowners enjoy tax breaks, allowing them to benefit at the end of the year as well.

8) Pay less in taxes

• Maximizing your deductions allows you to keep more of your own money. Be sure you’re taking all the deductions for which you’re eligible.

9) Know what you’re spending

• Where is your money going? Do you know? Create a personal budget to figure out where your cash is going and where you might cut back. You don’t necessarily have to constantly keep strict tabs on your budget, but getting all of your spending and saving on one page can help you get a better picture of your personal financial health. Visit http://www.cbhe.state.mo.us/Mostars/extwkst.htm for an on-line budget calculator.
• Do what works best for you. Some people are great a clipping coupons and seeking out great bargains. Some individuals find they cannot use credit cards without overspending. Be honest with yourself about your financial strengths and weaknesses so you may create a system designed to work for YOU.