Your mission, should you decide to accept it, is to get your financial life in order.
If you think that sounds easy, well, it's going to be harder than you think. If you fear the worst, don't worry. It's not going to be quite that bad.
Money is serious business. Gone awry, it can wreck lives and relationships while enriching the undeserving. Make it your mission to get it right, and the spoils will include things like a good night's sleep and significant savings on aspirin.
Most visitors to Fool.com see our site as a resource for cutting market commentary and top-shelf stock ideas. That's fair. It's what won me over back in 1995, and I know I'm not the last person to have stumbled onto The Motley Fool to gain a little no-holds-barred perspective on a particular stock or sector.
The problem is that you can't invest if you're not saving any of your money to invest. And you can't save if you haven't warmed up to something as simple as living below your means.
Giving credit some credit
Many financial institutions revolve around the simple premise of charging a higher rate for the money they loan out than the rate they pay for those funds. Take out a loan and your interest rate will be higher the rate paid to the person who walks in after you looking to open an interest-bearing CD. Leverage your brokerage account by going on margin and your rates will be higher than what you would be receiving if you had large sums of cash sitting idle. It's what makes lenders like Countrywide (NYSE:CFC), credit card issuers like Capital One (NYSE:COF), and discount brokers like Charles Schwab (NASDAQ:SCHW) tick.
Generally speaking, there isn't really anything wrong with that. Rare is the individual who never has to borrow. And thankfully, most big-ticket purchases -- a house, a car, college tuition -- usually come with reasonable rates. You can still get attractive rates on a new mortgage or a home equity loan, and the interest you pay may very well be tax-deductible. The hungrier Detroit gets, the more attractive short-term financing deals you'll find when shopping for a new set of wheels. Even student loans generally sport more than fair lending terms.
Things start changing for the worse once the purchases become less necessary and more whimsical. That mink stole looked snazzy in the display window, so you charged it without having the means to pay the credit card balance in full. Your set of golf clubs was perfectly adequate, but those shiny oversized drivers were just begging to be bought, so you responded with plastic.
Credit cards can be a crippler if you don't use them responsibly. As a vehicle for cashless convenience and reward points, credit cards are great. Companies as diverse as General Motors (NYSE:GM), Six Flags (NYSE:PKS), and Hilton (NYSE:HLT) all have affinity cards that reward users -- even if they never pay a penny in interest charges.
It's once you start using them as a crutch -- believing that the credit limit printed on your statement and not the money you have available in the bank is what you are able to swipe for -- that things get ugly in a hurry. Anything beyond a low introductory rate will sting you in the end if you are not paying off your balances at the end of the month, and even then, it's a temporary reprieve from the reality of the debt that you have incurred.
In short, if you can't afford to pay off your credit card in any given month, you need to boil down your purchases to the bare necessities until you get that mountain sanded down to an anthill.
Saving up for a waterproof poncho
I have no idea where the concept of saving for a rainy day came from, but if you've ever seen an umbrella salesman jack up his prices in a rainstorm, you can appreciate the need to plan ahead before the deluge.
Saving is not exclusively for the rich. Sure, it's easier to save big if you have an oversize income, but I've read about enough penniless lottery winners and pro athletes to convince me that a failure to save for that proverbial rainy day is a problem that has gotten people of all income levels wet.
Setting aside a little money by spending less than you're earning is the obvious solution, but that's really only the beginning. You can actually learn to spend smarter and make the money you're saving work harder.
Accept the mission to take control of your finances. You may already be a great investor. Now take the one logical step back to make sure that you're a great saver and a shrewd spender too.
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To help you on your mission, we're offering a free report, the first in our "Master Your Money" series. In it, Tom Gardner tells you how to make sure the companies you put your faith -- and investing dollars -- in are worthy of your trust. All you have to do is click here to claim it.
Longtime Fool contributor Rick Munarriz prides himself on living below his means, just above sea level. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. Charles Schwab is a Motley Fool Stock Advisor recommendation.
