Ten tips for financial security

John C. Ninfo II

As the Credit Abuse Resistance Education Program continues making presentations in high schools and colleges around the country about personal finances and avoiding debt, we are finding that our economic and financial crisis has resulted in students being more engaged and anxious to learn about these subjects.

We are also struck not only by how much students are concerned for their own financial futures, but how they are worried about the financial well-being of their families. They want to know what they need to do in view of the current and projected economy, but also, what their families should be doing.

In March 2007, I wrote an essay about the ABCs of Personal Finance. It set forth important tips about personal finances for high school students and their parents. If you missed it, you can read it on the CARE Web site, www.careprogram.us.

In that same spirit, here are the top 10 tips I have been giving students to share with their families.

I emphasize that they are not just for our current hard times, but are things to make habits and to practice for a lifetime:

- Create a budget. This is the foundation for a sound personal financial plan that will allow you to see whether you need to increase your income or decrease your expenses, or both. It will also clearly show you where you are spending your money and where you could spend less, so that once and for all you can take control of your spending instead of letting your spending control you.

- Save for emergencies and anticipated expenses. You know that if you have a 7-year-old car, it will require repairs. Those repairs are not an emergency and you need to anticipate a number of expenses like that. If you don’t have adequate savings you will end up putting emergency and anticipated expenses on a high interest-rate credit card and paying much more in the end. If you are working, it is best to save a certain percentage of your income right off the top. Consider 5 percent to 10 percent of your wages.

- Save for a job loss. In this environment, it is more important than ever that you have saved six to eight months of your after-tax salary. This, together with unemployment benefits, should give you the time you need to find replacement employment.

- Pay off debt. You need to de-leverage by eliminating your high interest rate debt, especially credit cards, by paying off the highest interest rate card first. Then it’s critical that you avoid debt in the future as much as possible.

- Think before spending. Make a conscious decision about every purchase. Ask if what you are spending is for needs or for wants, wishes, luxuries and conveniences. In each case, see if you can decrease or even eliminate your spending.

- Cash is king. Use cash as much as possible, including for everything under $20 and things you can eat or drink. It was recently reported on the CBS Morning News that if for one year you used cash for all of your purchases, you would save 20 percent.

- Understand credit scores. Your credit score will determine whether you can get a loan in these difficult economic times where credit is harder to obtain and, if you can, at what rate. Take steps to improve your credit score, even if it’s a good one.

- Buy insurance. You need disability, homeowners, automobile and health insurance. It may be difficult for you to afford this full insurance coverage, but remember, not having coverage in any of those areas could totally wipe you out.

- Do the math on all of your financial transactions. This is the only way you will understand the true cost of any services or credit you obtain and be able to determine if it’s really worth it to you.

- Live within your means. It’s difficult to live within your means if you buy a home where the costs of your mortgage, real estate taxes and insurance is more than 25 percent to 28 percent of your gross income, or if you buy a car with a loan of more than three years, or have credit card debt that you can’t repay within a year with your real disposable income without borrowing any other money. Just think, if Americans had insisted on only obtaining credit on this basis, our financial services industry and economy would never have melted down.

Daily Messenger contributor John C. Ninfo II, a federal bankruptcy judge, founded the Credit Abuse Resistance Education (CARE) Program, www.careprogram.us, a national initiative to teach high school and college students about using credit properly.