After posting my budgeting 101 article yesterday, I almost immediately got a response from a reader who had a very good follow-up question:

You talk all the time about setting goals and measuring progress. Without a budget, how do you set personal finance goals for yourself and measure progress?

My wife and I use only one metric to measure our financial progress - net worth. No other single metric says so much about our financial state.

Defining Net Worth
To put it as simply as possible, net worth is the value of your assets minus the value of your debts. In other words, if you sold everything you owned, emptied out every account, and paid every debt, how much cash would you have on hand (or, possibly, how much debt would you still have)?

Over time, a household with their financial hat on straight will see an increase in their net worth. They’ll spend less than they earn and invest the difference in some fashion. On the other hand, if there are financial difficulties, a family’s net worth might decrease over time, meaning their debt is increasing at a rate faster than their earnings - a very bad sign.

If you’re interested in trying it out yourself, here’s how to build your own net worth calculator.

Using Net Worth to Track Positive Financial Progress
Using your net worth to keep track of your financial progress is easy. Just calculate your net worth each and every month and track it over time. You might not necessarily see a jump every single month, but over the long haul, if the general trend is upwards, you’re in fine shape.

This long-term approach is much better, actually, than a monthly budget in terms of seeing the benefits of lifestyle changes and smart financial moves over the long haul - it constantly forces you to see the big picture, not just the picture of that specific month. You might not think a change that saves you $10 a month is a big deal from just the view of a monthly budget, but that $10 saved every month over ten years creates quite a different picture - used properly with an 8% annual return compounded monthly, that $10 a month becomes $1,802.12.

Because of that, things like buying in bulk and investing in quality stuff with a long lifetime show up as beneficial on a net worth progress chart, but don’t look nearly as good on a monthly budget sheet.

Using Net Worth to Set Short-Term Goals
My net worth calculator is a constant supplier of short term goals. Each month, I look at the sum total of assets and of debts and use that data to set small goals for the coming month - an asset increase of 1%, for example, or a debt reduction of 1%. These short term goals force me to keep my eye on the ball - talking myself out of buying VMWare Fusion, for a recent example - and keep myself constantly motivated.

These little goals are achievable, but by themselves they don’t seem like a whole lot. But look at it this way - if I target a debt reduction of 1% each and every month for a year, 11.3% of my total debt goes away. If I then keep pushing myself - moving that goal up to a 1.25% reduction every month, for instance, and then to a 1.5% reduction and then to a 2% reduction - I can push all of that debt out the door in just a few years.

Not only that, achieving those little goals over and over again enable big goals.

Using Net Worth to Define Long-Term Goals
Let’s say I want to achieve debt freedom in five years without reducing my current assets - that’s a big, audacious goal for most people. If my total debt is $100,000, that means that my true goal is to increase my net worth by $100,000 in five years.

How can I do that? $100,000 divided by 60 is $1,333 - that’s how much my net worth has to increase on average each month over the next sixty to achieve debt freedom.

I then set that as my small goal each month - my net worth needs to go up $1,333 that month. How can I do that? I can pay down extra debt. I can invest smartly. I can buy in bulk, effectively investing now for the future. I can work hard for extra income.

All of these little goals spring from a big goal, and that big goal is all about the net worth.

The Net Worth Mentality
The idea of net worth as a primary method of figuring financial success is a concept explained very well in the wonderful book The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf - I reviewed this one a while back and loved it.

Here’s what they had to say about the net worth mentality on page 7 of the paperback edition of the book:

From the time we are old enough to understand, society conditions us to confuse income with wealth. We believe that doctors, CEOs, professional athletes, and movie actors are rich because they earn high incomes. We judge the economic success of our friends, relatives, and colleagues at work by how much money they earn. Six- and seven-figure salaries are regarded as status symbols of wealth. Although there is a definite relationship between the income and wealth, they are very separate and distinct economic measures.

Income is how much money you earn in a given period of time. If you earn a million in a year and spend it all, you ad nothing to your wealth. You’re just living lavishly. Those who focus only on net income as a measure of economic success are ignoring the most important measuring stick of financial independence. It’s not how much you make, it’s how much you keep.

It’s not how much you make, it’s how much you keep. That’s a very strong assertion, and one that a lot of big spenders would argue vehemently with. But it’s true. The money you keep is the money that will allow you to be truly financially free. The one true path to a future where you can do whatever you want is to have a high net worth - without it, you’re guaranteeing yourself a lifetime of work and limited choices. With it, though, you can walk away from your old career anytime you want and chase your dreams - that’s what I did.

Lots of people have written me in the recent past asking me how I am preparing for an economic downturn. Take, for example, this email from Arnold:

A lot of major publications (The Economist being the biggest) have been predicting that the US will have a recession this coming year. My question has to do with preparing and surviving during a time of recession. Also, another idea would be how to work with the dropping in value in the dollar.

First of all, I think most mainstream articles on economic downturns are sensationalist. For most people leading normal, everyday lives, an economic recession doesn’t mean too much. Unemployment might rise some, but mostly it’s companies trimming fat - stable companies don’t fire good employees because of downturns.

If you’re worried about the economic downturn affecting your financial status in a significant fashion, there are one of several possibilities going on, most of which have more to do with your own choices than the market:

1. You’re concerned about your job performance and that you might be considered part of the “fat” at work. This concern usually comes from people who are underperforming at their job

Solution: Work harder, and keep track of what you do. Do what you can at all times to maximize your career and have a very good performance review. Here are fifteen things you can do right now to help, along with fifteen more.

2. You’re concerned about the long term health of your organization and you think a recession could kill it. Think about people working for Sears and K-Mart, for example. Those companies are sinking fast and could possibly go belly up in the next few years, triggered by even worse revenues from a recession.

Solution: Polish your resume and move on with your career sooner rather than later. It’s never a bad time to get out of a sinking ship. Figure out what you want to do with the rest of your life and move forward with that plan.

3. Your money is heavily in the stock market and another slide like the one from 2000 to 2002 would be devastating. You know from the past that recession means downturn in the market and you’re very worried about losing your investments you’ve built up.

Solution: Go conservative if this is keeping you up at night. Move heavily into bonds, for example, or into real estate by having your future buying go into these areas. Sell your stocks only if your ultimate sell date is coming in the next five or so years - otherwise, hold on for a roller coaster ride. During an economic downturn, a stock-heavy portfolio will not do well, but over the long run it will.

4. Your financial situation is so loaded with debt that if anything bad happens at all it collapses like a house of cards. People who are in debt up to their throats are kind of panicked right now, and deservedly so: if easy credit dries up and the economy goes down, their lives could be in deep trouble. If a job loss means you lose everything, you’re in deep, deep trouble.

Solution: Start living within your means. Build up an emergency fund, then start seriously tackling high interest debts. You need to buckle down now so everything doesn’t collapse later, so stop spending money and instead start eliminating debt and saving.

Here’s the real message: you control your economic future, not some Wall Street banker. If the economy goes sour for a while, you can make choices so that you sail right through it without a worry in the world.

Don’t let the fearmongering keep you awake at night - if you’re making sound financial and life choices, you’ll be just fine over the long run.

Quite often, I admire my cousin and his wife for some of the frugal things they choose to do in their lives. They buy late model used cars and drive them until they need replaced, eat out only on extremely rare occasions, and know cold which generic products are basically the same as the name brands. They’ve replaced almost all their light bulbs with CFLs and have actually disconnected their cable because they don’t use it much.

That’s why I was shocked recently to find out that they’re actually in a frightening debt situation. Why? They take that money that they save from frugal choices (and more) and then spend it on incredibly expensive toys. They have several ATVs, a huge array of hunting equipment, a taste for nice clothes, and their children have virtually everything they ask for.

The end result? Frugality isn’t helping them with their financial situation. They’re already doing it in some avenues of their life, but in other ones, the spending is so overblown that it undoes the buckling down. Often, the argument offered by people in this situation - including my cousin - is that the nice stuff they have is what they work so hard for, but if you ask them what happens if they were to lose their job, a deep look of fear pops up in their eye.

What can you do if you’re in this situation, where your basic needs are actually well below what you’re making, but you find yourself spending everything you bring in - and more? Here are some suggestions for putting yourself in a safer financial situation.

First, don’t give up your expensive hobbies. This might seem like shocking advice, but I’ve found that if you give up something you’re really passionate about, it works about as well as an “all-salad” diet - you do it great for a while, then relapse with crazy splurging.

Look at my cousin’s situation. He spends almost all of his free time with his family doing outdoor activities: riding around on their ATVs, hunting, fishing, and so on. It makes natural sense that he wants to spend his entertainment money on these things - and he should. Life is boring if you don’t have an outlet for your passions.

For me, my hobbies are reading and writing and some video game playing (and a little bit of music). My biggest expense is games for my Wii and DS and occasionally a computer upgrade. While I’m tempted to buy every interesting Wii or DS game I see, I’m pretty careful to not do this.

Instead of spending extra money on hobbies and entertainment, though, set up an automatic savings plan that takes some of the money out of your reach. That way, there’s no money sitting there to tempt you to spend. Take, say, $100 a month out of your checking and into your savings, and don’t touch it until you desperately need it.

You’ll find that your spending adapts to this new available amount. Maybe you’ll move from two new outfits a month to three every two months, or maybe you’ll hold off a few months on your next ATV upgrade. You still get to enjoy your hobbies and have those things that really drive you, but you also get to start putting away money for the future.

What I’ve found for me is that buying one video game, making a very earnest effort to master that game, and then move on to another one is a great way to keep my video game hobby alive with a lot of enjoyment but without much spending. Similarly, I hit the library and PaperBackSwap when I have a desire to read a new book (right now, for instance, I’m reading through most of John Steinbeck’s novels, all of which I could get through PBS or the library).

Over time, slowly increase the amount you’re withdrawing into savings. This works very well in conjunction with discovering new avenues of frugality or increases in salary, or if your interests begin to change.

You may also want to start making extra payments on outstanding debts. Now that our emergency fund is built up well, we have started making extra payments on our student loan debts, and it feels very good to watch them melting away. Once that’s done, we’re going to tackle our home loan with extra payments. This is a good move to make once you have plenty of money socked away to cover any emergency.

Soon, you’ll find yourself in a safer financial situation, and that’s exactly where you want to be.

As I slowly save for a new vehicle (we’re planning on a Honda Odyssey or a Toyota Sienna), I’ve come to realize that saving for a specific goal like this often seems slow and a bit unrewarding. Sure, the bank account goes up over time, but it still seems as though the goal is a long way off.

Luckily, I’ve found a way that really inspires me to keep going towards that goal: a visual savings goal reminder. Essentially, you create a visual reminder of the progress you’ve made towards the goal (to feel good) that also reminds you how far you need to go (to motivate you) in terms of small steps that you can take quite often (making it seem possible).

Here’s how it works.

First, define your goal explicitly. Are you saving for a new car? What kind of car is it and how much will it cost? Are you saving for a home improvement? What’s the estimated cost on it? No matter what you’re saving for, try to define it specifically enough so that you have a rough idea of what it will cost.

Next, take that dollar amount and round it up to a nice, even number. Try to make the goal have at least three zeros on the end, if nothing else, and preferably just a single number followed by zeros. So, if you’re saving for a 20% down payment on a $280,000 house, your goal might be $56,000 or, even easier, just $60,000.

Then, figure out a dollar amount that you can easily save a couple times a week. Can you put away $10 a couple times a week? How about $25? What you’re doing here is figuring out the size of the pieces you’re going to use to build up to your goal. You want the pieces to be small enough so that you can do them regularly, but not so small that they individually don’t mean much.

This next step requires some math. First, divide the total amount of the goal and divide it by the amount you can regularly save. This will tell you how many times you need to save that amount to reach your goal. Then, take that number of payments and factor it using this tool. You’re going to want to find the factor pair where the numbers are pretty close to each other. So, if you’re going to need to make 2,500 payments for your goal, the pair you’ll want is the 50 by 50 pair. Got it?

Now, take a single sheet of graph paper and make a rectangle on it. Using that linked tool is really helpful - you can specify exactly the grid that you want. How big? Those two factor numbers you obtained above will do it for you - if your factor numbers are 50 by 30, for example, then one side should be 50 squares and one should be 30 squares. Cut that rectangle out, and then find a picture of what you’re saving for and tape the rectangle to it. Hang it on your fridge or somewhere else where you’ll see it over and over again.

At this point, start saving. Each time you can save that small dollar amount in a savings account, put it in the account and then color in a square on the rectangle grid. You don’t even need to look at the savings account balance, just make those contributions and then color in a square each time you do it.

What happens? The constant reminder of the goal encourages you to keep saving money, and eventually you’ll find yourself putting “found money” into that account because it’s a lot of fun to fill in the squares and see yourself approaching the goal. Then, when you finally fill in that last square, it’s time to buy!

Some tips:

Get an online savings account, if you don’t have one already. An online savings account allows you to pull those savings bits right out of your checking account at your convenience, or even set up a plan to do it automatically (don’t forget to fill in the blocks, though). I’m a big fan of ING Direct (and use them for virtually all of my checking and savings needs) because of their ease of use, reliability, and association with a large international bank (ING).

Make an “extra” payment every once in a while. Make some frugal choices that free up the money to make an additional payment into that account that you didn’t expect, then go fill in that extra square. It feels really good when you start to realize that by not eating out and making a healthy meal for your family at home and also installing some CFLs, you bought and paid for a piece of your new vehicle/down payment/whatever your goal is.

Focus on one goal at a time. I find it’s much better motivation to focus heavily on one specific goal rather than a bunch of goals at once. Focus on saving for a car, then when you reach that goal, start another one. Spreading oneself out really hurts with focus - at least, that’s been true in my experience.

Almost a year ago, I wrote five entries on my five biggest financial fears at the time. Here they are, one more time:

#1. Buying a home We lived in an apartment at the time, and the idea of purchasing a home scared me to death. I didn’t know the first thing about purchasing a home and the thought of the overwhelming debt almost paralyzed me.

#2. Investment risk I knew next to nothing about investing, but watching the stock market lurch about and imagining my money going up and down rapidly like that scared me quite a bit.

#3. Roth IRAs First, I didn’t know anything about them. Second, I had just started investing and the risk of it wasn’t very palatable to me at first. Third, I was feeling as though my retirement savings was inadequate.

#4. Buying a car My wife’s car was actually in worse shape then than it is now, so I was really concerned about coming up with the money to buy one.

#5. Estate planning I was really still in the process of understanding the responsibilities that faced me as a parent, so I was starting to get concerned about what would happen to my son if I were to suddenly pass on.

Looking back on that list, I’m amused about how much has changed. The house buying was much easier than I would have ever believed, for starters, and that worry is completely gone. For the Roth IRA, I basically avoided the question by looking at my own retirement options and upping the contributions quite a bit, greatly easing my nervousness about retirement. My reading about investments and investing some myself has greatly reduced my unease about investment risk, and my wife’s car is actually doing quite well and I feel we’re well-prepared for our next vehicle purchase.

So what’s left? What sorts of personal financial issues keep me up at night? Here are the five biggies in my life right now.

#1. Estate planning This is the one holdover from last year, and it got much more important with the birth of our second child. I still don’t feel entirely right with the plans in place for a sudden death. For starters, I am rather nervous about our options for potential guardians for our children, and I also am not sure how exactly to handle income that I would earn after I pass. I need to set up documentation so that everything is dumped into trusts for them and managed by someone - and I think I know the best person to do it, too.

What do I need to do? I need to sit down with an estate planner and work through the documentation to get all of this taken care of. I also need to prepare a binder of information explaining to my wife some of the things that need to be done if I were to pass on and she were to survive me - things like how to properly close The Simple Dollar, who to contact for various accounts, and so on.

#2. Staying at home One of the biggest debates in our life right now is whether or not one of us should be a stay at home parent. I personally think we’d both do fine at this task, but I also think that my son gets a lot out of the daycare that he attends (it really is perhaps the nicest daycare I’ve ever seen - I am just blown away by it every time I’m there). We keep twisting this around, back and forth, creating financial projections if one of us makes the leap, and so on. We both believe we could make it, but we’re both really scared to take that jump.

What do I need to do? Keep talking about it and looking at it. We’ve basically committed to a trial period with both children at daycare, and we’ve also agreed that if a third child arrives before our oldest is in school, one of us will stay at home for a few years. Also, above all else, provide a warm and loving home for our children.

#3. A third child We’re basically in agreement about wanting a third child. We can afford it easily, and we’ve already figured out how we want to rearrange the bedrooms to make this possible (the oldest one gets a room of his own, basically, and I lose my office, but I don’t use it that much anyway). The question is: now or later?

What do I need to do? Wait until we both feel we’re ready, then go for the gusto.

#4. Our investment plan I am constantly tinkering with our investment plan, and I often post the latest iteration for people to discuss here, because I usually learn a few things and find some new directions to investigate. I feel pretty confident about the plan I currently have, but I am nervous about implementing it.

What do I need to do? Be calm and just follow the plan. Good things will happen over the long haul.

#5. Our next car purchase While it’s not nearly as worrisome as it once was, I’m still carefully considering our future vehicle purchases. I think we’ve got this under control, but I do have a bit of worry about my wife’s car dying before we get to execute it.

What do I need to do? Keep going with the savings plan, and be ready to go if we need to buy earlier than we’re planning.

Really, the first three worries are the ones that deeply concern me - the other two are much lesser concerns in the bigger scope of things. It’s amazing how things change over a year, though.

Even though I have myself on a very healthy financial track, I’m still prone to the weakness of buying material goods. I think of things that I want and over time, I tend to talk myself into buying them, spending money that I really shouldn’t be spending.

Many readers ask why I shouldn’t be spending that money. It’s my hard-earned money, and I’m currently in at least a reasonably decent financial position. Besides, you only live once, right?

Let’s use this philosophy when evaluating the purchase of a game for my Wii. Let’s say I want to buy a new game that costs $50, even though I have three Wii games at home that I enjoy playing and still am nowhere close to mastering. This is a common temptation for me, actually.

Let’s look at the scenario where I buy the game. I take the $50, go buy the game, and enjoy playing it for, let’s say, thirty hours, all told. In a few years, it winds up either being sold or in the closet. Now, there are exceptional games that I’ve played much more than thirty hours, but there are many more games that I didn’t play anywhere close to that.

Let’s also look at the scenario where I don’t buy the game and instead put that $50 into my investment portfolio. Let’s give it a hypothetical 10% return each year. I’m 29, and I plan on cracking that portfolio when I’m 45. So, $50, at 10% annual return a year, is $230.

Having that Wii game would cost me $230 towards my dream. Maybe that’s a sacrifice I might make once or twice because I will deeply enjoy the game, but on a regular basis? All I would be doing is selling my future, one game at a time.

Think about the unnecessary purchases you make and what they cost you. Here are a few to chew on from my own life recently, given the same scenario of a 10% portfolio return over 16 years.

A fast food meal at Taco John’s costs $10. Poof, there goes $46 towards my dream. Eat that meal twice a week for a month? $368 of my dream vanishes down the ol’ pie hole. How about I just go home and eat something simple instead that costs just a dollar or less?

A new game for my Nintendo DS costs $30. Poof, there goes $138 worth of my dream. How about I just play one of my older games again, especially since I haven’t mastered some of them?

A subscription to HBO costs $15 a month. Over a year, I’ll sacrifice $827 worth of my dreams. Why not just watch a good movie on another channel instead or, better yet, turn off the television and find something better to do with my time?

A single latte costs $4. Just that one latte, quickly swallowed and forgotten about, removes $18.37 from my dream.

Every time you spend money unnecessarily, you’re making an active decision to sacrifice a piece of your bigger dream. Think about that the next time you buy a DVD or a coffee or anything else. Sometimes, that thought isn’t enough to prevent me from making the purchase, but more often than not, I close my eyes and realize that, indeed, I am sacrificing a piece of that dream for this little piece of consumerism in my hand. And I put the item back on the shelf and walk away.

Eventually, it happens to everyone. Something unexpected and disastrous happens, leaving us with a giant medical bill or some other enormous expense. Maybe you wake up one morning with more than a pint of blood having poured from your ear (it happened to me in college) or you have a heart attack on Thanksgiving morning as you’re about to pull the turkey out of the oven (it more or less happened to my mother). Maybe you’re awakened by the sound of a car running into and mostly through your house (it happened to the parents of a friend of mine). Maybe a tornado picks up your car and drops it in an abandoned rock quarry (it happened to a friend of mine). Maybe you buy a house on Tuesday and it burns to the ground on Friday (it happened to my cousin and his wife).

Sometimes these things just happen - they’re devastating, and often they tear asunder things you’ve been planning. There’s not too much you can do to really prevent them, but there are a lot of things you can do to minimize their impact on your life.

First of all, don’t panic. If you find yourself getting extremely upset and losing control, separate yourself for a little while and calm down. If you really can’t handle the emergency yourself, call 911. That’s what they are there for.

Second, don’t avoid it. As soon as you’re in control of your faculties, start dealing with the situation. Find out all of the resources available to you that can help, and start using them to correct your life. If you lost your job, don’t sit around for three weeks playing video games in the basement - polish up your resume and start hitting the pavement now.

Third, it is often useful to let down your guard a bit and contact someone you really trust to help you; for example, if your spouse is in dire straits or just passed on, you may need someone to step in and help you with the affairs of the moment. If you don’t have anyone, contact a local church (preferably the one most similar to your faith and upbringing) as most pastors are glad to help out someone truly in need.

There are also a few simple ways you can prepare now so that when the bad thing happens, you’re ready.

The first (and perhaps most important) thing is building up an emergency fund. Each week, you should have an automatic withdrawal from your checking account into a savings account - say, $25 or so. This money should just sit there in that savings account until a disaster strikes. That way, if the transmission dies in your car, it’s not panic time - it’s just time to go get money out of your savings account. This will help for smaller emergencies that can mostly be dealt with with cash.

The second task is to cover yourself and your spouse with life insurance, especially if you have children. This is especially true if you are in a two-income home, where both people work and both incomes are required to make payments - life insurance will help to prevent a financial disaster later on. A term policy for a person in their twenties is quite inexpensive - this should be a precaution that many people take.

Most states require some form of automobile insurance and many employers (though not all) provide health insurance. If your employer does not provide health insurance, it is well worth your time to seek out an employment situation that does provide it, as it is incredibly valuable. If you are self-employed, you may need to insure yourself, but there are many plans available for this.

If you take home nothing else, though, it’s this: build an emergency fund and don’t be afraid to use it when you need it. It will serve you well time and time again when life, well, kicks you in the teeth.

I have a close relative who is always complaining about how he’s broke because of various elements of bad luck. His car’s broken down, his water heater leaks, he got a speeding ticket - there’s always some reason why he can’t get ahead financially. The problem is that when times are good, he often spends his money in a frivolous fashion.

While it’s fine to spend some money, a bit of careful planning can ensure that “bad luck” comes around less often. Here are thirteen (ooh… unlucky!) tips for reducing the impact of unexpected expenses of all kinds in your life.

Build an emergency fund This is the best thing you can do. Each week, deposit a little bit of money into a savings account that you designate as an emergency fund. Then, when a disaster strikes, you can calmly pull the money from your emergency fund and take care of the disaster. How much should you have? Many people offer a “cap,” but I generally believe that it’s a good idea to put that small amount in weekly forever - if you ever get “too much” in the account, then pull out some for other purposes.

Make your investments diverse Don’t make the mistake of putting all of your money in the same investment - or the same types of investments. When you start investing, make sure that your money is in several investments that don’t have significant overlap. For example, you might want to own some domestic stocks, some international stocks, and a few bonds. A great way to diversify yourself is to use broad-based low-cost index funds.

Build up multiple streams of income This can defend you against job loss or other unexpected changes in income. How can you do it? Start a side business. Buy investments that continually earn a reliable income. Produce a one-time item that can earn an income over a long period, like a book or a detailed website. There are lots of possibilities.

Back up your data regularly If you keep financial or other important data on your computer, back the data up regularly. I keep most of my important stuff backed up on two separate 4 GB Flash drives that I keep in the safe - I back data up to this weekly and it’s saved me at least once.

Change your passwords on occasion If you use online accounts significantly, changing your passwords occasionally can protect you against identity theft. I change my passwords every three months. If you’re ever suspicious that anyone may have access to an online account of yours, change the password immediately.

Ensure your checking account offers some overdraft protection Everyone makes little mistakes sometimes, but if you do the math wrong on your checking account, you might just get dinged with a big unexpected fee. Once, with my old checking account, I got dinged with an ATM fee and an account maintenance fee - together, they overdrafted the account and cost me a lot of money. Make sure your checking account offers some form of overdraft protection - I particularly like ING’s overdraft protection on their online checking, which basically covers the overdraft, doesn’t charge you a fee, but charges you a low interest rate on the amount of the overdraft.

Get some insurance If you rent, renter’s insurance will protect your possessions in the event of a fire. If you own a car, look at comprehensive insurance options. If you have a young family, you should definitely look at life insurance. These all reduce your personal risk and, in most cases, are worth it.

Don’t speed or blatantly break other traffic laws Every time you speed, you’re basically taking a chance that there won’t be a police officer with a radar gun to catch you. Remember that each time you drop the pedal to the floor - it could seriously cost you. Besides, speeding is expensive for your gas mileage - most cars are optimized to go the speed limit and they get far worse gas mileage if you speed.

Keep an updated list of your possessions in a place not inside your living space This is a very important protection to have in the event of a disaster in your living quarters. List everything of value in your home, along with as many serial numbers as you can find. Be specific with the model numbers, too. This way, if something disastrous does happen, you can use this list with your insurance company to get replacements on the items.

Put a high value on reliability in your purchases - use “total cost of ownership” Don’t just go for the cheap items when replacing an appliance or an automobile. Instead, do some research and look at the total cost of ownership. For example, quite often the most expensive options end up being the cheapest if you look at energy costs and lifespan into account - if you spend $1,200 on a washing machine, for example, it might use half the energy and have twice the lifespan of the $200 model, meaning that it’s actually cheaper over the lifespan of the machine than the other one - plus, you’re less likely to have an unexpected nasty surprise.

Don’t put your money in speculative investments I get tons of emails about various hot stocks, and I hear lots of “tips” from various people on hot investments. Ignore all of them. Most of those investments are either highly speculative or are set up for you to fail at them. Don’t ever put your money in an investment based solely on one person’s unsolicited recommendation or on one article you read in some investment magazine. Play it safe with your money and it won’t fly away.

Make every payment well in advance of the due date Every bill I have dings me significantly for being even one day late. In order to avoid that unexpected expense, which sometimes happens even if I mail the bill a day or two early, I make sure to get my bills in the mail at least a week before their due date. Don’t let your utility bills ding you with unexpected fees - keep up with your bills.

Don’t carry a balance on your credit card If you can avoid it, don’t put anything on your credit card that you can’t immediately pay off. As soon as you start carrying a balance, you start getting eaten with finance charges, which make it harder to get the debt paid off. When it starts piling up - which it easily can when you start carrying a balance - you’re putting yourself in a dire financial position. If a big unexpected expense comes up, first try to find other ways to pay for it - clean out your media collection, for instance, or sell a few savings bonds. Use your credit card only as a last resort because it will bite back - hard.