Credit is tight. How the heck is that a blessing? Unlike your unwise elders, you won't be able to borrow your way into trouble, at least for a while. You may actually learn to live within your means.
That's a big reversal from a couple of years ago, when lenders were pelting virtually everyone with credit cards, auto loans and outsized mortgages. Today the pendulum has swung so far in the other direction that you really need your financial ducks in a row to get a loan. (Read "Need a loan? Borrow like it's 1975" for details.)
The good news: Everybody's cutting back these days, and the national savings rate has jumped to 5%, so you won't stand out if you're careful with your money.
Where to start
That means it's a great time to:Get in the habit of saving. A financial cushion is essential now that you can't just borrow your way out of a jam. Read "Why you need $500 in the bank" for starters. If you're saving for a home, shoot for at least a 10% down payment plus three months' worth of mortgage payments before you buy. ("The end of the 0% down payment" tells you more about why.) Want to buy a car? A 20% down payment is good -- 50% is even better -- because plunging resale values can leave you "upside-down" if you pay less ("What a car wreck could cost you" has details). Really smart folks pay cash for their cars and drive them until the wheels fall off. Owning your cars for 10 years instead of five can save you more than a quarter-million bucks over your lifetime.
More from MSN Money
Pay your credit card balances in full. This was always the best way, but it's crucial now that issuers are slashing limits and raising rates with little or no justification. If you don't charge more than you can pay off when the bill comes, you won't be at the mercy of mercenary lenders. This one habit can make a world of difference in your financial life, leaving you richer and at far less risk of bankruptcy.
Work on your credit scores. These little three-digit numbers have never been more critical than they are today. If you have good scores, you still have access to cheap loans and the best rewards cards. If you don't, you're in a world of hurt. Read "Raise your credit score to 740" and "7 fast fixes for your credit score" for more.
Meet Weston at The Money Show
MSN Money's Liz Pulliam Weston, the Web's top personal-finance columnist, will be among dozens of experts on hand at The Money Show in Las Vegas, May 11-14, to help you learn what you need to know to make smart money decisions during the economic crisis. Admission is free for MSN Money users.To register, call 1-800-970-4355 and mention priority code 012866, or sign up online.
Published March 16, 2009
Video on MSN Money
401(k) statement shock? If you're brave enough to peek at your statement, don't panic. MSN Money's Liz Pulliam Weston tells you what you can do in this out-of-control market.
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