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If you're just starting out and are already thinking about what financial health might mean, you are presenting yourself with a golden opportunity.

When investing, time is one of your most powerful allies--one that most people weaken by not investing when they first start out.

Unfortunately, most people who are just starting out aren't thinking about their long-term financial health, either because they don't know the issues, believe that they can take care of it later, or don't make enough money to make a difference.

What follows are six habits that, if followed, should put someone who is just starting out on the path towards controlling their financial destiny. These habits may convince you that it's a really good idea to start planning now, that beginning earlier rather than later makes it much easier to achieve financial goals, and investing even small amounts is very worthwhile.

Habit #1: Keep Good Records

"What can be measured can be understood. What can be understood can be altered."

- Katherine Neville

Without consistent, organized, and accurate records, financial planning is nearly impossible. Good records allow you to:

  • Gauge where you stand financially--the foundation for sound financial planning.
  • Make reasonable and effective changes in your financial behavior.
  • Measure your progress towards your goals.

To keep good records, you need to create a filing system that allows you to track:

  • What you earn (income)
  • What you own (assets)
  • What you spend (expenses)
  • What you owe (debt)

View a list of essential files for an organized, accessible, and easy-to-update Financial Filing System.

Habit #2: Examine and Clarify Your Values and Financial Goals

Knowing how your values inform your financial goals, and making those goals specific and concrete, makes it possible to start working toward achieving them.

Without the specific direction that financial goals provide, it is difficult to create a budget, to have a compelling reason to stick to it, or to have a very good chance of ending up where you will want to be 2, 20, or 40 years down the road.

Learn more about setting goals and objectives.

Habit #3: Determine Your Net Worth

Once your financial records are organized, it is easy to figure out your net worth--he way most financial planners measure wealth.

Why bother to figure out your net worth, especially if you already know it is either very small or even negative (say, for example, if you have significant student loans outstanding)? Calculating your net worth every year gives you a way to measure your progress toward your financial goals.

Use's Net Worth Tool to see where you stand.

Habit #4: Know What You Earn And What You Spend

Few people know exactly how they spend their money or even exactly how much money they make. Without knowing this basic information, it is very difficult to:

  • Create the budget that allows you to manage your money.
  • Make informed decisions about your spending.
  • Chart realistic changes in your spending.

Financial planners usually call this process figuring out your cash flow. Learn more and use's Cash Flow Tool.

Habit #5: Build a Budget (and Live By It)

Wealth is determined not by how much you make but how much you keep. The preceding four habits allow you to establish the fifth--building a budget.

A budget may sound dull, laborious, and a little too deliberate, but a tremendous amount of wealth--not to mention the probability that you will achieve your financial goals--can be found in the details of your daily spending.

Learn more about money management.

Habit #6 Reduce Your Spending

Many people who are just starting out claim that they can't find the extra money to invest that will help them start working toward their financial goals.

But even a small amount of money invested in tax-deferred retirement accounts can--thanks to the wonders of compounding interest--transform itself into a small fortune.

How much is it worth to save an extra $100 every month? If you start when you're 24, invest the money in a tax-deferred retirement account, and get a 10% return on your money, by the time you're 34 you'll have over $20,000. By the time you're 65, those little investments will have grown to $616,000.

The benefits of saving and investing your money is magnified over time--so the earlier you begin and the more you save, the more time your money will have to grow.

 Establish Good Habits

 Retirement Accounts


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