Just like with our physical health, there are some key rules that everyone should follow in order to stay financially healthy. By veering away from these basics, you run the risk of not attaining future financial goals, or worse yet, having unmanageable debt.
Tip #1: Pay Yourself First
When asked who their most important creditor is, may people respond that it is their mortgage company or the lender that has financed their auto. Yet, while these are important assets that many people must make regular payments on, the truth is that your most important creditor is YOU. Most people begin saving for retirement while they are still at a young age – and this is critical because the amount of income producing assets you have when you are ready to retire will be crucial to your future lifestyle. Therefore, no matter what your income is today, it is imperative that each and every month, you make a payment to yourself. This deposit could be in the form of a savings account, an employer sponsored retirement account such as a 401(k), or other investment vehicles of your choice that will help get you to where you want to go in the future.
Tip #2: Avoid Unsecured Debt
One of the worst financial traps that anyone can get into – whether young or old – is that of credit card debt. Many young people are bombarded with credit card applications while still in college. But, while the offer of instant credit may sound tempting, it is easy to let balances grow along with excessive interest and fees. If you aren’t able to pay off your credit card balance every month, you can easily get further and further behind until you are using a larger percentage of you income just to keep up with the minimum payment. Unfortunately, as the amount of your debt grows – and especially if you are unable to keep up with the payments – your credit score can be negatively affected. When this happens, it becomes more difficult to get financing from other lenders such are mortgage companies, auto loan companies, and other lending institutions.
Tip #3: Review Your Finances Regularly
Any plan will usually require a periodical update – and this is especially important when considering your financial plan. The goals you set and the milestones you achieve along with way will be imperative to how – and to how well – you will live in the future. So remember that it’s important to get regular financial health “check-ups.” It is a good idea to review your financial situation at least annually. This means that you should really take a look at your income, expenses, and savings in order to determine if you are still on track with your financial goals. In some cases – especially if you’ve had a life changing event such as marriage or the birth of a child – your financial goals may have changed. Therefore, be sure that you make the necessary revisions to your financial plan in order to compensate for new milestones.
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