The document discusses 10 habits that can help develop financial stability and success. Some of the key habits mentioned include making savings automatic through regular transfers, controlling impulse spending, evaluating expenses to live frugally, investing for retirement early, keeping family secure through insurance and wills, eliminating debt through a snowball payoff plan, using an envelope system to track spending budgets, paying bills immediately or setting up automatic payments, reading about personal finances to educate oneself, and working to increase one's net worth over time through various means.

1. First, identify the financial stressors in your life. For many people, these include: worries about
debt, paying bills late, not having a financial security net, not having a sense of control over your
finances, and arguments over finances.
Let’s address these each with some simple solutions:
1. Get out of debt. This is often the first necessary step. But how do you do this? First, monitor
your impulse spending urges to stop the bleeding. Use a debt snowball as a plan to get out of
debt. Also see: How I save, How to stop living from paycheck-to-paycheck, and How I ended
my affair with the credit card.
2. Pay your bills as soon as they come in. This is one of the easiest ways to eliminate stress
over bills. When you get your power bill, write a check, put it in an envelope, and mail it the next
day. Or if you bank online (and you should), go to your computer, log in, and send your
electronic payment. To do this, you’ll need to develop a bit of a cushion in your bank account, so
you always have enough to pay the bills as they come in.
3. Make your payments automatic. It’s an great alternative to the above method. Instead of
paying bills as they come in, you can set up automatic payments and automatic savings payments
online, so that as soon as your paycheck comes in, your bills get send out and a certain amount is
transferred to savings (or investments). Either method works great.
4. Develop a financial security net. This is something you should also do right away. First, if
you are married or have any dependents, you should get life insurance right away. Do your
research and make sure you’re getting the right policy for your needs. Don’t get whole life
insurance — it’s not the smartest investment. Second, look at your other insurance to see if it
meets your needs, from auto to homeowners to renters and more. Third, make sure you have a
will — this might not seem necessary if you are young, but if you have any dependents, this is a
must. Fourth, develop an emergency fund — right away. I know, it’s something that everyone
advises, but if you don’t have at least a small emergency fund, you will never have financial
peace of mind. Build it up to 3-6 months worth, or whatever you need to feel secure.
5. Review your finances at least weekly. To get a sense of control over your finances, you have
to monitor them. Be sure you’re balancing your checkbook at least once a week, to ensure that
you don’t have bounced checks or debit transactions. Even if your bills are automatic, you’ll still
want to make sure they’re going out. Take the 10-20 minutes every week that’s necessary to look
at your budget, your expenses, your income, and make sure you’ve got everything under control.
If you’ve got a partner, do this together.
6. Talk about money with your partner. Money can be a huge stressor on a relationship. It’s
important that you talk about money on a regular basis in a non-emotional way, as hard as that
may sound. It’s crucial, in fact, to the survival of your relationship. You both have to be on the
same page, or you will eventually argue and have major crises about your finances. You need to
talk about your financial dreams and goals, your spending patterns, your budget, your income,
your savings, debt, financial security, bills and the like. If you don’t already do this, it may take
awhile in the beginning, and be difficult. But try to do it as a team, and not accuse each other of

2. anything, don’t blame, and try to be positive and constructive. Over time, it will get easier. At the
minimum, devote 10-20 minutes each week to reviewing your finances together, reviewing your
goals, and making sure that you’re together and seeing eye-to-eye. It will make a major
difference in your relationship and in your stress level.

3. 10 Habits to Develop for Financial Stability and Success
Just like any goal, getting your finances stable and becoming financially successful requires the
development of good financial habits. I’ve been researching this topic extensively in the last few
years in my quest to eliminate debt, increase my savings and increase financial security for my
family. I’ll talk more about these habits individually, but wanted to list them in a summary (I
know, but I’m a compulsive list-maker).
Here they are, in no particular order:
1. Make savings automagical. This should be your top priority, especially if you don’t have a
solid emergency fund yet. Make it the first bill you pay each payday, by having a set amount
automatically transferred from your checking account to your savings (try an online savings
account). Don’t even think about this transaction — just make sure it happens, each and every
payday.
2. Control your impulse spending. The biggest problem for many of us. Impulse spending, on
eating out and shopping and online purchases, is a big drain on our finances, the biggest budget
breaker for many, and a sure way to be in dire financial straits. See Monitor Your Impulse
Spending for more tips.
3. Evaluate your expenses, and live frugally. If you’ve never tracked your expenses, try the
One Month Challenge. Then evaluate how you’re spending your money, and see what you can
cut out or reduce. Decide if each expense is absolutely necessary, then eliminate the unnecessary.
See How I Save Money for more. Also read 30 ways to save $1 a day.
4. Invest in your future. If you’re young, you probably don’t think about retirement much. But
it’s important. Even if you think you can always plan for retirement later, do it now. The growth
of your investments over time will be amazing if you start in your 20s. Start by increasing your
401(k) to the maximum of your company’s match, if that’s available to you. After that, the best
bet is probably a Roth IRA. Do a little research, but whatever you do, start now!
5. Keep your family secure. The first step is to save for an emergency fund, so that if anything
happens, you’ve got the money. If you have a spouse and/or dependents, you should definitely
get life insurance and make a will — as soon as possible! Also research other insurance, such as
homeowner’s or renter’s insurance.
6. Eliminate and avoid debt. If you’ve got credit cards, personal loans, or other such debt, you
need to start a debt elimination plan. List out your debts and arrange them in order from smallest
balance at the top to largest at the bottom. Then focus on the debt at the top, putting as much as
you can into it, even if it’s just $40-50 extra (more would be better). When that amount is paid
off, celebrate! Then take the total amount you were paying (say $70 minimum payment plus the
$50 extra for a total of $120) and add that to the minimum payment of the next largest debt.
Continue this process, with your extra amount snowballing as you go along, until you pay off all
your debts. This could take several years, but it’s a very rewarding process, and very necessary.
7. Use the envelope system. This is a simple system to keep track of how much money you have

4. for spending. Let’s say you set aside three amounts in your budget each payday — one for gas,
one for groceries, one for eating out. Withdraw those amounts on payday, and put them in three
separate envelopes. That way, you can easily track how much you have left for each of these
expenses, and when you run out of money, you know it immediately. You don’t overspend in
these categories. If you regularly run out too fast, you may need to rethink your budget.
8. Pay bills immediately, or automagically. One good habit is to pay bills as soon as they come
in. Also, as much as possible, try to get your bills to be paid through automatic deduction. For
those that can’t, use your bank’s online check system to make regular automatic payments. This
way, all of your regular expenses in your budget are taken care of.
9. Read about personal finances. The more you educate yourself, the better your finances will
be.
10. Look to grow your net worth. Do whatever you can to improve your net worth, either by
reducing your debt, increasing your savings, or increasing your income, or all of the above. Look
for new ways to make money, or to get paid more for what you do. Over the course of months, if
you calculate your net worth each month, you’ll see it grow. And that feels great.

5. Signals of A Stock Price Increase
Rise in Earnings
If a company earned $1 per share for the past three years and its earnings are now $1.20 per
share (a 20 percent increase), consider this increase a positive harbinger. As the saying goes,
"Earnings drive the market," so you need to pay attention to the company's profitability. The
more a company makes, the greater the chance that its stock price will increase.
Increase in Assets as Debts Are Stable or Decreasing
Increasing assets while decreasing debts (or at least stabilizing them) is key to growing the book
value of a company. Book value refers to the company's value as it appears on a balance sheet —
equal to total assets minus liabilities. Book value usually differs significantly from market value
(or market capitalization) because market value is based on supply and demand of the company's
stock in the marketplace. Rising book value has a positive impact on market value, which, in
turn, tends to drive the stock price up as well. Therefore, it pays to watch book value. Rising
book value can be accomplished in one of two basic ways: debt stays level as assets rise and
assets stay level as debts decline. When looking at a company's assets and debts, the best
scenario you can find is assets rising and debts declining.
Positive Publicity for Industry
When the media report that a company is doing well financially or that its products and services
are being well received by both the media and the market, that news lets you know that this
company's stock may be going places. This positive publicity ties in nicely with the other point
made in this chapter about consumer acceptance for the company's products and services.
Positive press and consumer acceptance are important because they mean that the company is
doing what's necessary to please its customers. The positive media coverage also may attract new
customers to the company. Gaining customers means more sales and more earnings, which
translates into a higher price for the stock.
Heavy Insider or Corporate Buying
Company insiders (such as the CEO and the treasurer) know better than anyone else about the
health of a company. If insiders are buying stock by the boatload, then these purchases are
certainly a positive sign for investors. If individuals such as the CEO or the treasurer are buying
stocks for their personal portfolios, you can assume that they think the stock is a good
investment. When the corporation buys its own stock, it's usually considered a positive move.
The corporation may see its own stock as a good investment. Additionally, corporate stock
buying reduces the number of shares available in the market, potentially pushing the stock price
higher.
More Attention from Analysts
Analyze a stock according to its own merits first. Then watch the stock's price as more and more
analysts start to direct the public's attention to it. In a sense, they're promoting your stock, an
action that tends to boost the stock's price. Don't let the analyst's views sway you, though,
because analysts may tout a stock for unsavory reasons. Perhaps the company is a client of the
brokerage firm, or maybe the brokerage firm owns a lot of the company's shares and wants to

6. unload them.
Rumors of Takeover Bids
Rumors of a buyout are always welcome, but the bottom line is that it should alert you to a good
value. Regardless of whether the buyout rumor proves true, you shouldn't even consider the
stock if it isn't worth owning on its own merits. If it's a good stock, the rumor tends to increase
its visibility so that the chances of a takeover do, in fact, increase. Rumor or not, the attention
does tend to increase the stock's price.
Praise from Consumer Groups
A company is only as good as the profit it generates. The profit it generates is only as good as the
revenues that the company generates. The revenues are based on whether customers are
accepting (and shelling out money for) the company's products or services. Therefore, if what the
company offers is popular with consumers, it bodes well for profits and consequently higher
stock prices.
When you're ready to invest in stocks, look for high consumer satisfaction. Review consumer
publications and Web sites and read the surveys and con¬sumer feedback information. Good
publicity and word-of-mouth consumer satisfaction are things that investors should be aware of.
Stock-picking expert Peter Lynch (formerly of Fidelity Magellan fund fame) sees this popularity
with consumers as very valuable stock-picking information. He likes to see what consumers buy
because that's where the company's success starts.
Strong or Improving Bond Rating
The creditworthiness of a company is a critical factor in determining the company's strength.
Most people presume that the bond rating is primarily beneficial for bond investors, and they're
correct. However, because the bond rating is assigned according to the company's ability to pay
back the bond plus interest, it stands to reason that a strong bond rating (usually a rating of AAA
or AA) indicates that the company is financially strong.
Powerful Demographics
If you know that a company generates lots of profit from the teenage market and you find out
that the teenage market is going to expand by 10 percent per year for the foreseeable future, what
would you do? Exactly — you'd buy the stock of that company. If a company has strong
fundamentals and appealing products or services and its market is expanding, that company has a
winning combination.
Low p/e Relative to Industry or Market
The price to earnings (P/E) ratio is a critical number for investors. Value investors in particular
scrutinize it. Because the stock price's future ability to rise is ultimately tied to the company's
earnings (profits), you want to know that you're not paying too much for the stock. A low P/E
ratio (low relative to some standard, such as the industry's average or the average P/E for the
S&P 500) is generally considered safe, and the stock is a potential bargain.
If the industry's P/E ratio is 20 and you're looking at a stock that has a P/E of 15, all things being
equal, that's great. The company has room for growth, and you have a good value.

7. Types of
Stocks
Income Stocks. Income stocks are those with a long and sustained record : paying high
dividends. Generally, a company whose common stock falls to this category is in a fairly stable
and mature industry (e.g., an electric utility company). These companies normally pay out a
relatively high percentage of corporate earnings as dividends to common stockholders. Because
these companies distribute (rather than reinvest) their earnings, their stocks are less likely to
experience substantial capital appreciation. They : also more likely to be sensitive to interest rate
fluctuations. Income stocks are particularly popular with people who need current cash flow
from their stock investments.
Growth Stocks. Growth stocks are stocks that are expected to experience high rates of growth in
operations and/or earnings. These growth rates are usually substantially higher than the market
averages. To support their high growth rates, these companies generally reinvest their earnings
instead of distributing them as dividends. Growth stocks are generally much riskier than income
stocks. The price of growth stocks tends to rise faster than that of other stocks, and their total
return tends to be greater than that of income stocks. On the other hand, growth stocks are also
more likely to suffer price decline larger than the average stock in a bear market. Stocks of
companies in new and rapidly expanding industries—computers, engineering and other high-
technology industries—are frequently considered growth stocks.
Value Stocks. These are stocks of companies which are considered undervalued because they
may be in an industry that is out of favor, they may be experiencing management turmoil, or they
may be restructuring their business operations. These stocks tend to have lower price/earnings
and price to book ratios than growth stocks do. Therefore, their prices are cheap com¬pared to
the prices required to be paid for growth stocks.
Cyclical. Cyclical stocks are stocks of companies whose earnings tend to follow the business
cycle. Highly cyclical industries include oil and other natural resources, steel, and housing.
Cyclical stocks are often more risky than stocks in companies less subject to changes in the
business cycle. If you choose to invest in cyclical stocks, your objective is to purchase these
stocks when you envision an economic upturn and sell them before an economic downturn.
Defensive Stocks. Defensive stocks are stocks that are, in a sense, counter¬cyclical. Prices of
these stocks tend to remain stable or perhaps rise during periods of economic downturn, while
showing poorer results (in comparison to other stocks) during periods of economic upturn.
Investors frequently use defensive stocks to balance their investment portfolio. Defensive stocks
are well-established companies producing goods that are generally still in demand during an
economic downturn, such as food, beverages, and pharmaceuticals.
Blue Chip Stocks. The stocks of the companies with the highest overall quality are those
considered to be "blue chips." The companies with blue chip common stocks are often
financially stable companies with steady dividend-paying records during both good and bad
years. They are usually the leaders within their industry or industry segment. Blue chip stocks
include all of the Dow Jones 30 industrial companies, some utilities, and the stocks of other large
and successful companies. Because of the blue chips' high level of quality and relative stability,

8. many investors find them attractive long-term investments.

9. Signs of Bad Stock
Earnings Slow Down
Profit is the lifeblood of a company. Of course, the opposite is true as well. The lack of profit is a
sign of a company's poor financial health. Watch the earnings. Are they increasing or not? If they
aren't, find out why. If the general economy is experiencing a recession, stagnant earnings are
still better than robust losses — everything is relative. Earnings slowdowns for a company may
very well be a temporary phenomenon. If a company's earnings are holding up better than its
competitors and/or the market in general, you don't need to be alarmed.
Sales Slow Down
Before you invest in a company, make sure that sales are strong and rising. If sales start to
decline, that downward motion ultimately affects earnings. (See the previous section, "Earnings
Slow Down or Head South.") Although the earnings of a company may go safely up and down,
sales should consistently rise. If they cease to rise, a variety of reasons may be to blame. First, it
may be temporary because the economy in general is having tough times. However, it may be
more serious. Perhaps the company is having marketing problems, or a competitor is eating away
at its market share. Maybe a new technology is replacing its products and services. In any case,
falling sales raise a red flag you shouldn't ignore.
Exuberant Analysts Despite Logic
Too often, analysis give glowing praise to stocks that any logical person with some modest
financial acumen would avoid like the plague. Why is this? In many instances, there is, alas, a
dark motive (or something not so dark such as ... ugh ... stupidity). In any case, remember that
analysts are employed by companies that earn hefty investment banking fees from the very
companies that these analysts tout. In that situation, issuing a less-than-complete or truthful
report can be easy.
Insider Selling
Heavy insider selling is to a stock what garlic, sunrises, and crosses are to vampires: an almost
certain sign of doom! If you notice that increasing numbers of insiders (such as the president of
the company, the treasurer, and the vice-president of finance, for instance) are selling their stock
holdings, you can consider it a red flag. In recent years, massive insider selling has become a
telltale sign of a company's imminent fall from grace. After all, who better to know the
company's prospects for success (or lack of) than the company's high-level management? What
management does (selling stock, for example) speaks louder than what management says.
Dividend Cuts
For investors who own income stock, dividends are the primary consideration. But, income stock
or not, dividend cuts are a negative sign. Of course if a company is having modest financial
difficulty, perhaps a dividend cut is a good thing for the overall health of the company. However,
usually analysts see a dividend cut as a sign that a company is having trouble with its earnings or
cash flow. If the company you own stock in announces a dividend cut, find out why. The cut
may be simply a temporary measure to help the company out of some minor financial difficulty,
or it may be a sign of deeper trouble. Check the company's fundamentals and then decide.
Increased Negative Coverage

10. You may easily recognize unfavorable reports of a company's stock as a sign to unload that
stock. Or you may be a contrarian and see bad press as an opportunity to scoop up some shares
of a company victimized by negative reporting. In any case, take the negative reports as a signal
to further investigate the merits of holding on to the stock or as a sign for selling it so that you
can make room in your portfolio for a more promising stock choice.
Industry Problems
Sometimes being a strong company doesn't matter if that company's industry is having problems;
if the industry is in trouble, the company's decline probably isn't that far behind. Try to be aware
of industries that are intimately related to your industry. Very often, problems in one industry
can affect or spread to a related industry. If auto sales are plummeting (for example), then that
may have a negative effect on prospects for auto parts or auto services companies.
Debts is too high or unsustainable
Excessive debt is the kiss of death for a struggling company. During 2000-2002, many
companies that experts thought were invincible went bankrupt. In 2001, a record 255 public
companies filed bankruptcy. The most obvious example is Enron. Many analysts and investment
advisory publications actually touted Enron as a strong buy — even though the amount of
problematic data could have made Godzilla gag.
Funny Accounting: No Laughing Here!
Understanding a company's balance sheet and income statement, and making a simple
comparison of these documents over a period of several years, can give you great insights into
the company's prospects. You don't have to be an accountant to grasp key concepts.