Five Money Rules to Live By - NBC Chicago

Five Money Rules to Live By

Financial literacy begins with the basics



    Avoiding the downward spiral to financial doom begins with five simple money matters. (Published Wednesday, April 21, 2010)

    Hundreds of seminars throughout Chicago this week are helping people get started on a fresh path of financially-sound decisions.

    "As a society we are not very financially literate," said Karen Chan, a financial expert with the University of Illinois Extension office in consumer and family economics.

    To help change that, Chan offers up her Five Money Rules to Live By:
    Rule#1 Pay Your Bills on Time

    "A ding in your credit history can affect how much you pay for things like auto insurance and your ability to get a job," Chan explained.  Two late fees can equal $70. The added interest can cost you another $400 on a $4,000 credit card balance.

    Rule #2 Save Something every Payday
    At the very least, stuff some cash in an envelope.  Or set up automatic transfers to a savings account. Stick to it.

    Rule #3 Know How Much You Owe and How Much You Own
    Calculate your net worth every year. Add up your assets, cash and retirement funds, and then your liabilities. A mortgage, auto loan and credit debt. That is your net worth. "Like your weight, a number is an excellent way to measure your progress," she said.

    Rule #4 Protect the Important Things
    Chan suggests you evaluate your insurance needs and have a will and power of attorney in case of a tragedy.  Designate someone to handle your affairs if you suddenly can’t.

    Rule #5 Write Down Your Financial Goals
    "If you don’t know where you are going you’re not going to get there," Chan says. She recalls making her own list years ago, losing it, and then finding it again.  She says she was amazed to see she actually accomplished what she set out to do. Chan says often people want to jump into risky investing before they even get a handle on rule #1. She says when it comes to finances it’s best to "crawl walk and then run!"

    How do you know when to get help?
    Chan says major changes in your life are usually a good time, divorce, a new job or an inheritance. But, bottom line, if you are overwhelmed with your finances any time, pick up the phone and get help.

    For more information on a Money Smart education check out Many of Chan's Programs are on the web, including Plan Well, Retire Well, Tax Breaks for Higher Education, and Rules for taking distributions from tax-deferred retirement plans, and Dealing with Clutter.