FINANCIAL HELP

By Scott E. Halliwell, CFP®, ChFC®, CLU®, CWS®
I recently responded to a question in our Just Ask Scott financial advice community that I thought would be good to share with a larger audience. The question was from a 19-year-old wanting to know how to get started financially to avoid potential problems in the future (kudos to her for starting so young!)
As I crafted my somewhat fatherly advice (with which I claim experience, as I've got 2 kids of my own), it occurred to me that this message might be helpful for others as well — both those just getting started like my question-asker, and those farther along their path.
Here are the three concepts I shared that, regardless of age or station in life, should help increase just about anyone's odds of financial success:
Budgeting built on a foundation of self-discipline.
Cash reserves.
Prudent debt usage.

Budgeting and Self Discipline

One of the biggest challenges to financial success in America these days is our cultural insistence on keeping up with the Joneses — and overspending to make that happen! If I could impart just one thought to someone starting out, it would be to avoid this type of thinking and behavior. Spend money based on what YOU make TODAY, not based on what you think you will make some day and certainly not based on what your friends or neighbors make (or act like they make).
For this to work, you need to know how much you have coming in each month and then spend less than that amount — in other words, you need a budget. But more important, you need to stick with it. Simply having a budget is not enough to foster financial success. You actually have to follow it and stay within your limits. As you build your budget, be sure to include some line items for savings.
If you are having trouble figuring out just where to cut back or how to prioritize things, check out my previous Needs vs. Wants blog post.
Cash Reserves

So, you may be wondering, "Why do so many people have tons of credit card debt?" One reason could be the overspending I just spoke about, but another huge contributor is often lack of cash reserves.
To me, one of the great joys of life is the constant series of curve balls it throws at us — you just never what's coming next. Unfortunately, some of those curve balls will have negative financial consequences associated with them (i.e. car breaks down, medical issue arises, job loss happens, etc.). If such a pitch comes your way and you don't have any cash to handle it, what are you likely to do? You guessed it — use a credit card with the plan of paying it off later.
Sadly, that same move is the beginning of the financial end for many people. You need a plan to make sure that doesn't happen to you.
Generally speaking, the plan I recommend is to create and keep a cash reserve (sometimes called an emergency fund). Shoot for a balance of 3-6 months worth of your committed expenses. This way, when one of those financially negative curve balls comes at you, you will be in a better position to handle it.
Prudent Debt Usage

Finally, even the most diligent money managers will find themselves faced with situations where it makes sense to (or they need to) borrow money to cover the cost of something needed to function in our society — cars come to mind for most people. The key here is to treat debt with respect and handle it carefully. It's like fire — used carefully, it can do great things for people. Used carelessly and it can burn down their world.
So, just be careful with it. Keep your monthly consumer debt payments (non-mortgage debt like auto loans, credit cards, and installment plans) to less than 20% of your take-home pay each month and you will be on the right track.
Make it Happen

So that was my advice to the 19-year-old, but, really, these ideas can apply to just about anybody.
Embrace these 3 concepts — Disciplined Budgeting, Cash Reserves, and Prudent Debt Usage — and I'll bet you will quickly find yourself in much better financial shape than a lot of people you know.

Keywords: budget , debt , halliwell
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Scott Halliwell