Here are a few common-sense tips for avoding financial woes.
1. Look honestly at your life. Accept that the cost of living is rising faster than most incomes. Curb your spending.
2. If you’re not saving, start. Everyone needs a cushion. The usual recommendation is to save 10 percent of your income, but for many, that’s not realistic. A more practical approach is to save as much as you can, even if it’s $10 a week. Pay your savings account every month, just as you would a bill.
3. Take a hard look at your debt. If you are carrying too much of it and making minimum payments, it’s time to get off the treadmill. Simplify. If that means selling a car or even a house and moving to something smaller, don’t be afraid to do it. Consolidate your debt and move it as often as needed to get the lowest interest rate.
4. Think before you buy. When shopping, ask, do I really need this at all? And, how am I going to pay for it? If you don’t know how you will pay for a purchase, other than on credit, you’re probably better off without it.
5. Consider house and car payments temporary. Only commit to purchases you can foresee paying off. Plan to achieve debt-free ownership, and follow through on your plan.
6. View your home as a strategic investment. If you own it and plan to stay in it, try to pay it off as quickly as possible. Making one extra payment on the principle each month will reduce the length of your mortgage by half and save you thousands of dollars in interest.
7. Scrutinize your monthly bills. See if you’re paying for goods and services that you don’t really need or want or use. See where you waste and stop it. And pay your bills on time. You’ll earn a higher credit rating–and lower interest rates–in the future.
8. Periodically, reassess your insurance. Make sure your coverage reflects your current situation. Move toward high liability limits and high deductibles.
9. Believe that you’ll grow old. If you’re in your 20s or 30s, prepare now by saving–as much and as consistently as possible. If you’ve reached middle age, pump as much money as possible into retirement vehicles, such as Roths, IRAs, and other tax-sheltered accounts. Make use of employee retirement plans and, when other savings are established, invest in the stock market. Over the long term, the stock market has historically paid better returns than savings accounts or CDs.
10. Be careful about college. Many counselors advise parents to resist the urge to re-mortgage homes or otherwise rob their retirement to help put kids through college. No one wants to be 70 years old and still paying on a mortgage. Moreover, students have funding options, such as loans, grants and scholarships, that aren’t available to retirees.
Finally, help your children avoid debt in their own lives by setting a good example. Teach them the difference between “wants” and “needs.”