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Good Financial Habits
 Jun 08, 2004

Developing and maintaining good financial habits can make managing and saving your money easy. Financial success and excellent credit can only be obtained if you have good financial habits. This article provides tips on how to develop good financial habits.

Perhaps you have heard this old saying: "An ounce of prevention is worth a pound of cure." Basically, the best way to solve a financial problem is to avoid it in the first place. If you do not have financial problems right now and if you are working on overcoming them it is a good idea to begin developing good financial habits. They can keep you from getting into trouble, and they can keep you from getting deeper into trouble if you are already there.

Below are some of the best ways to begin developing good financial habits:

Live within your means

This is, perhaps, the most important thing you can do to begin developing good financial habits. Making more money than you spend is the foundation of all good financial habits. It is the essential ingredient to financial success. This means that you should look at your income and your expenses. If spending the money will put you over your income, you either need to make more money or you need to spend less. Cut out the unnecessary things.

Develop a habit of saving

Another good financial habit to have is that of saving. Saving can help you prepare for the unexpected. Additionally, saving up for something ensures that you have the money, and that you do not have to go into debt for very much. Have short-term savings goals and long-term savings goals. Build an emergency fund so that when unexpected expenses come up, they are not so devastating. A habit of saving can help you keep your credit score higher and protect you from financial catastrophe.

Choose your debt carefully

It is true that in some cases, debt is unavoidable. But part of developing good financial habits is choosing your debt carefully. Loans for a modest and affordable home, a practical car and an education are usually acceptable debts. Additionally, debt associated with starting a business is often considered necessary. But you should avoid excess debt, and try to keep your loans for as little as possible.

Pay your bills on time

When you have obligations, you should pay them on time, and in full, every time. Your utilities, housing, debt and other obligations should be paid on time. This will keep you from having to waste money on late fees and interest charges. Additionally, it will help you build a good credit profile. Making on time payments is one of the most important things you can do in terms of developing a good credit score.

Pay more than the minimum

If you already have debt, and are trying to reduce it, it is a good idea to pay more than the minimum. Reducing debt as quickly as possible is key to developing good financial habits. When you pay only the minimum you can spend years and thousands of dollars in interest.

Watch your credit history

You need to keep an eye on your personal credit history. This is a record of all of your financial dealings. It is important that it is accurate and timely. You need to check your credit report regularly to make sure that errors are fixed. Additionally, keeping track of your credit score can help you spot cases of potential identity fraud. Your credit report is used to decide your fate in a number of financial situations. From mortgage loans to insurance to jobs, your credit report can have a big impact. Make sure that everything is what it should be.

Watch out for too much available credit

Remember that available credit should not be viewed as "your" available money. Instead, it is important to realize that credit is a loan. It is someone else's money that you borrow. Even if you are not in trouble now, it is important to realize that many companies look at your available credit and see the risk for excessive debt. You can request that credit card companies not increase your credit line without your asking. You can also cancel cards if you feel like there is too much available credit.

It is important to plan for the future and to begin developing good financial habits as soon as possible. Financial success is a lifestyle, not an event. This means that you need to be making wise financial decisions and acting on good information. Educate yourself, and make sure that you are developing good financial habits.

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