Ellington

When I was in college, I met a young lady who was in debt to the tune of tens of thousands of dollars. She was only a sophomore, about 20 years old, so why did she owe so much money?

Like many of us, the promise of "easy" credit lured her into buying things she couldn't afford. She had pulled out her credit cards to fund shopping sprees and lavish vacations, and now she couldn't make her minimum payments. She didn't have health insurance, and an unexpected illness resulted in hospital bills that she couldn't afford to pay.

Being well doesn't just mean having a healthy body. All kinds of stressors can affect us, including having mountains of debt. Money issues are among the top reasons couple argue and split up. And anyone who's been hounded by debt collectors will tell you how much fun that can be.

Ultimately, a debt-free life is the best financial position to be in. If you have debt, work to pay it off. If you don't, work to save money, not just for retirement, but for those unexpected expenses that are sure to come up. When you're 70 and retired with a decent nest egg and don't have to work at Walmart, you'll be happy you learned to embrace financial wellness.

Few quick and easy paths to wealth actually work. You hear the pitches all the time, promising six-figure earnings in a month and continuous, unlimited earnings forevermore by working for only an hour a day. These programs may have worked for few (probably the folks selling them), but unless you win a lottery, the route to wealth is usually through hard work. Be persistent, keep learning, be willing to take considered risks and cultivate outside-of-the-box thinking.

Make a budget. To reach a goal, start by knowing where you are right now. Many people fail financially because they have no idea how they spend their money or even how much they bring in. Set your financial goals and stick to them like your life depends on it.

To begin, track your income and expenses for a month. Once you know what you actually earn and how much you spend, a budget can help you live within your means. Keep tracking your income and expenses, and adjust your budget accordingly.

Small budget adjustments can give big returns. Instead of eating out every day, for example, take your lunch to work three or four days a week. You may save $20 to $50 a week, or up to $200 a month.

Pay your bills on time. You start building your credit the moment you open accounts such as cable, phone, cellular, electricity, automobile loans and credit cards. The best way to build credit is never to get behind on your monthly bills. Once you are behind, creditors will charge late fees and increase interest rates. Plus, companies report negative information in as little as 30 days. You may dispute negative information, but some companies won't remove it until years later.

These days, good credit also gives you an employment advantage. Many employers evaluate your creditworthiness when making hiring decisions.

Pay off your credit accounts. I can't say enough about this. Credit card and store interest rates can be exorbitant. If you only make minimum payments, it could take years to pay the smallest amounts, even if you never charge another thing. You'll end up paying much more than you actually borrowed.

Here's a plan: First, figure out how much you can afford to pay on all of your credit accounts combined. Then, beginning with the smallest amount (or the highest-interest account), put the bulk of your available funds into paying that one off first, making minimum payments on the rest. Paying off the smallest bills first will give you a psychological boost and keep you motivated. As you pay off an account, cut up the card (cancelling an account can hurt your credit rating), and apply the money that went to paying it off to the second largest amount. Rinse and repeat. It may take a while, but the peace of mind you'll gain and the money you'll eventually save is well worth it.

Once you're free and clear, only charge what you can afford to buy with cash. Instead of charging items you can't afford right now, save until you have the cash and then use your credit card as a short-term, interest-free loan. Make it your goal to pay off the card every month. This practice will help you build and maintain a decent credit rating without accumulating debt.

Don't be afraid of credit cards. They can work to your advantage if you use them appropriately.

Open a savings account for emergencies and another for those high-dollar items in your future; set up automatic deposits to savings with every paycheck. You'll be surprised at how quickly even $10 or $20 per paycheck adds up, and how little you'll miss the cash if it never hits your checking balance. Then, when you need the extra cash, you won't be tempted to run up a credit card.

If your employer offers it, participate in an employer-matched 401k plan. Make your goal to save at least the matching amount, if not more. Talk to a financial expert to see if other types of tax-deferred savings plans such as IRAs are more appropriate for you. In addition to helping you save for retirement, for high earners, these plans have the potential to put you in a more favorable tax bracket.

For those under 30, experts recommend putting at least 7 percent of your salary into a 401k plan. As you get older, increase your contributions. At 40, you should be putting as much as 10 percent to 15 percent of your salary into your 401k. That may seem like a large amount, but again, as you get accustomed to it, you will not miss the cash.

Tips to Save More
• Challenge late fees from credit cards and insufficient funds fees from banks. Especially if you've been a good, long-term customer, creditors and banks will usually offer this as a "customer courtesy." (Remember those words.) Be persistent and demand more from your customer-service rep. Many times, reps will waive fees just to get you off the phone. Others have quotas for fee waivers. If one won't waive the fee, hang up and call right back.

• Ask your cell-phone service provider to waive or lower charges for overages. Cellular providers are usually good about giving discounts if you periodically go over your minutes. Call and ask the provider to waive or lower the extra fee, using the phrase "customer courtesy." The only industries that consistently will not waive fees are energy providers; they know you probably don't have any competing companies to go to.

• Invest. If you are an amateur, research investments carefully with reliable sources, or seek the advice of a professional. Some investments are riskier than others, so it is important to know exactly how much you can afford to lose should the investment turn sour.

• Ask for lower interest rates on your debt annually. If you have made your payments on time, creditors of student loans, personal loans and even credit cards may lower your rates. They may only go down by a fraction, but in the end, it will save you money.