Simple Steps to Financial Wellness, June 2001

Though all the Web sites, books and financial gurus out there make it seem extremely complicated, financial health is really very simple. It's like losing weight. You can read all the magazine articles you like, but in the end it comes down to a few boring habits that improve your life a little bit at a time.

The strategies below will set you on a course toward financial prosperity. By incorporating them into your everyday activities, you will provide yourself with the resources for a better life.

1. Keep good, updated records.
Yes, you have to balance your checkbook. The first step to gaining control of your finances is to find out how much you own, spend and save. If your affairs are a mess, it may take you a while to get things in shape, but once you have your finances in hand, you'll only need to spend a few minutes a week on accounting. Buy a software program such as Quicken or Money, and enter all your financial information. These programs will tell you:
  • what you earn (income)
  • what you own (assets)
  • what you spend (expenses)
  • what you owe (debt)
  • your progress towards your goals.
If you don't have a computer, you can keep track of your finances in a simple notebook. Keep a running total of all your accounts, and write down everything you spend.

2. Examine and Clarify Your Financial Goals and Values
Now that you know where you stand, you need to know where you want to go. Think about where you would like to be in 2, 20, or even 40 years. Would you like to retire early? Are you thinking of starting a family? Would you like to start a business? Financial planning can help you get there.

3. Pay Off Your Credit Cards
For most people, credit card debt is the single largest obstacle to financial health. If you're guilty of carrying credit card debt, your first goal should be to pay it off. By paying only the minimum payment every month, you're just digging yourself into a deeper hole.

4. Have a Budget and Use It to Reduce Spending
Wealth is determined not by how much you make, but how much money you keep. Take a look at your spending habits and figure out where you're overdoing it. Draw up a budget for yourself and stick to it. But keep it simple enough to follow easily, and allow yourself a few indulgences. If you make things too hard on yourself, you'll never get anywhere.

5. Save, Save, Save
You may think you can't afford to save any money, but every little bit counts. Think of saving the way you would any other expense. As the saying goes, "pay yourself first." As soon as you get your paycheck, deposit a prearranged portion into an interest-bearing account, just as though you were paying your phone bill. Even if it's only a few dollars a month, the power of compound interest will surprise you in a few years.

But don't carry debt in order to save. One of the biggest mistakes people make is holding onto savings while carrying credit card debt. It just doesn't make sense. The interest rate on your credit card debt is probably far higher than the rate of interest you're making on your savings. Pay off those credit cards first!

Just as losing weight requires a simple regimen of eating less and exercising more, financial health requires you to spend less and save more. By developing good habits, you'll give yourself a lifetime of prosperity.