The Four Habits of Financially Secure People

By Juan Hovey
January 27, 2010

Good habits are the key to financial security. If you want to put yourself in position to weather any financial storm, you need to understand and follow only four good habits:

1. Work hard, preferably at a job you love.
2. Stay out of debt.
3. Save at least 10 cents of every dollar you earn.
4. Protect yourself against catastrophe with appropriate insurance.

These habits are a recurring theme among the financially secure, and putting them to use in your own life can help put you on the road to being financially fit.

Work hard, preferably at a job you love -- Studies show that Americans work harder than most other people in the world, and what they have to show for it is an economy that creates extraordinary wealth year after year, decade after decade. But not everyone who has a job loves it; indeed, many jobs are just jobs, and no fun. For lots of folks, a job is not a calling but a means to an end. They have families to raise and bills to pay, and they take work wherever they find it.

People who want to make themselves financially secure don't always love their work either, and they need a paycheck like everyone else. But they work harder than most because they know that hard work pays off in many ways. It creates opportunity, for example; in any company, it's the hard worker who gets the difficult assignment, and it's the difficult assignment done well that gets the raise or the promotion, or both.

Hard work brings you two bonuses in its wake. The first is the satisfaction of knowing that you've done your best. The second is a small miracle. No matter what your job, if you master it, you can't help but like it. And if you like your job, you'll work hard at it.

Stay out of debt -- Studies also show that Americans load themselves down with more debt than people in other countries, compounding the difficulties they face in making themselves financially secure. Only those who keep their debts under control stand a chance to make themselves financially secure.

That's not to say all debt is bad, however.

There's nothing wrong with going into debt to buy a house, for example. Homeownership is a reasonably good store of value in the long-term. There's nothing wrong with taking on debt to buy a practical car, either, so long as you see the car as a means to an end -- that is, an efficient way to get back and forth to work -- and not as an end in itself.

Consumer debt, on the other hand, is a killer -- "consumer debt" meaning the debt people pile on to buy consumer goods such as televisions, do-it-all telephones, vacation stays at expensive resorts, and the like. Consumerism drives the economy, and the more people buy, the stronger the economy gets -- even though people do much of their buying with credit cards with large running balances.

No matter what it does for the economy as a whole, however, credit card use is usually a bad idea for the individual because it leads to overspending, not to mention high interest charges if you don't pay your balance off every month.

The solution: Use cash when buying anything other than irg-ticket items -- and no matter what you're buying, don't spend more than you have in your bank account.

Save at least 10 cents of every dollar you earn -- The solution to the problem of putting money aside into savings is simple: Pay yourself first. To see what this means, think of your mortgage lender. Your lender has a claim on your income, right? And since you can lose your house if you don't satisfy that claim, you make writing those checks to your lender a priority.

If you don't make it a priority to put money aside into your savings every month, you won't lose your house, to be sure. You'll just lose the chance to make yourself financially secure -- and no matter what your age, study after study shows that you will almost certainly reach that goal if you put aside at least 10 cents of every dollar you make, and preferably 15 cents.

Protect yourself against catastrophe with appropriate insurance -- Bad things happen to good people. No matter how good a driver you are, you can have an accident. No matter how carefully you guard your health, you can get sick. No matter how young you are, you can die.

Insurance is the only way to protect yourself and your family against these risks. Find a good insurance agent, figure out what risks you face, and get insurance to cover them. Without it, no matter how much you save, and no matter how careful you are about your debts, and no matter how much you love your job, you can't possibly make yourself financially secure if the unexpected were to occur.