Avoiding Financial Trouble: Ten Tips

These simple suggestions will help you stay out of financial hot water.

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1. Create a realistic budget and stick to it.
This means periodically checking your budget against your actual spending patterns and readjusting your figures and spending habits accordingly.

2. Don't impulse buy.
When you see something you hadn't planned to buy and don't actually need, don't purchase it on the spot. Go home and think it over. It's less likely you'll return buy it after having had a chance to think it over.

3. Don't buy something just because it's on sale.
Buying a $500 item on sale for $400 isn't a $100 savings if you didn't need the item to begin with. It's spending $400 unnecessarily. (And it may not have been a real sale -- some stores mark items down almost immediately, to make people think they're getting a bargain.)

4. Get medical insurance if at all possible.
Even a stopgap policy with a large deductible can help if a medical crisis comes up. You can't avoid medical emergencies, but living without medical insurance is an invitation to financial ruin. And if you think you'll just go to the emergency room if something dire comes up, realize two things: 1) This doesn't help you with chronic conditions like cancer, and 2) Although the emergency room can't turn you away for lack of insurance, they still expect you to pay the bills later.

5. Charge items only if you can afford to pay for them now.
If you don't currently have the cash, don't charge based on future income -- sometimes future income doesn't materialize. Meanwhile, you'll be paying exorbitant interest rates, which may wipe out any savings that you gained even by buying an item on sale! Try tossing all your credit cards into a drawer and committing to living without credit for a while.

6. Avoid large rent or house payments.
Obligate yourself only for what you can now afford and increase your mortgage payments only as your income increases. Consider refinancing your house if your payments are unwieldy.

7. Avoid cosigning or guaranteeing a loan for someone.
Your signature obligates you as if you were the primary borrower. You can't be sure that the other person will pay.

8. Avoid joint obligations with people who have questionable spending habits -- even a spouse or significant other.
If you incur a joint debt or tax bill, you're probably liable for it all if the other person defaults. In many cases, such liabilities have been known to outlast the relationship.

9. Don't make high-risk investments, such as investments in speculative real estate, penny stocks and junk bonds.
Invest conservatively, opting for certificates of deposit, money market funds, and government bonds.

10. Find alternatives to spending money.
For a friend's birthday, take her on a picnic rather than to an expensive restaurant. When someone suggests that you meet for lunch, propose meeting at the museum on its free day or going for a walk in the park. Instead of buying book and CDs and renting videos, borrow them for free at a library.

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