Seven Habits of Money-Smart People

You may think that having financial stability means making a lot of money. But it isn't really how much you make, as it is what you do with your money. Money-smart people are those who take the time to practice good money habits. These strategies can be used by people of all income levels to help get organized, reduce debt, and plan for the future.

1. Know where you stand first.
If you don't know where your money is going, you need to get a handle on this first. Spend a month recording all of your purchases, even the little ones. It can be eye-opening to see how much you spend in each category. Once you can see the whole spending picture, you can find out which holes to fill.

2. Cut out the fat.
Most budgets have some extra fat that can be trimmed away. The key to this strategy is to determine what are your needs versus your wants. Take a close look at those expenditures that are not necessary and determine if they are cutting too deeply into your bottom line. It may be time to eliminate some things from your budget.

3. Keep on top of things.
Your financial records should be organized enough to save you time and money, not to cause you stress. If you are in the habit of paying bills late, set a specific day of the week to do your bookkeeping. Some banks offer automatic bill paying services, so you will never miss paying a bill again.

4. Dump your debt.
Everyone knows that debt can cost you. Start by leaving your credit cards at home. This will ensure that you are not incurring any additional debt. Then set a goal of paying double or even triple of your minimum payments on your credit cards. This will help eliminate your debt faster.

5. Fund the future.
Saving for retirement and other upcoming costs is essential. Take advantage of your employer's 401(k) plan. If your employer matches your contributions, even better. You can also contribute to an individual retirement account (IRA). If you need to save money for an expensive that will come up soon, plan how long you have to save and figure out how much you need to put away each month to reach your goal. This way, you will not be tempted to pull out your credit card when the time comes.

6. Plan for a rainy day.
An emergency fund will also help keep you out of debt. Even a couple of thousand dollars in the bank can be the difference between paying cash for a new water heater or loading up the credit card again. Money-smart people realize that having no buffer between you and the inevitable mishap will only lead to debt.

7. Evaluate your life.
Look over your financial situation once a year to see if you need to make any changes. Life insurance may need to be changed with the birth of a baby. Your home owner's insurance might need to be increased if you recently remodeled, or you may wish to reduce your collision coverage as your automobile ages. Take the time to ensure that you have planned well for both the expected and unexpected.

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