Four Rules for Financial Success

It's disheartening to consider that back in 2004, Fed chairman Alan Greenspan actually believed that the economy and consumers would benefit if lenders provided more alternative mortgage packages than just the traditional fixed-rate mortgage. And so, thinking he was doing the country a great service, he started in motion what has ultimately lead us into a downturn.

But, he wasn't alone in his actions, and we can't lay the blame solely at his feet. The fact is, we as a nation bought into a life fueled by credit. Those who took on riskier mortgages, knowing they couldn't afford the payments (but spurred on by the American Dream) bear some of the blame for blindly trusting lenders. Lenders, of course, have had a good bunch of blame heaped on them recently, and for good reason.

Sadly, blame won't undo the mess, so let's move forward into what can be done. Suze Orman has some great rules of financial responsibility that we can all learn from that will help us keep our money in order:

1. Don't take anyone else's word.

The truth is, we should be learning about our finances every step of the way. We should be questioning those offering us advice and consider the source carefully. If someone offering financial advice is trying to sell you something, consider that there may be ulterior motives there. Make educated decisions based on research and understanding rather than listening to the word of someone else, even if it's the most venerated financial advisor in town.

2. Wishful thinking can lead to financial ruin.

As Suze says, "Making financial decisions based on what you 'hope' will happen is where the trouble begins." Take the mortgage situation for example. People took on these rate cuts upfront "hoping" the bubble would continue to grow and their homes would appreciate in value enough to refinance quickly. Home values inflated 35% within two years is unusual, but homeowners didn't stop to consider this at the time.

3. Plan for the worst.

This doesn't mean you have to expect the worst, it simply means you need to understand that things come up. So it's perfectly natural that you should have a back up plan, just in case. Energy costs have gone up, healthcare has increased on the out-of-pocket expenses, and the credit card bills seem like they're stacking up as most families just try to meet their ever day needs. This is why an emergency fund is important. Having at least three-to-six months expenses tucked away can help people deal with the unexpected in life.

4. If you can't afford it today, then don't buy it.

Putting something on a credit card knowing you won't be able to pay for it when the bill arrives is just adding to your financial trouble. Consider the amount of interest you pay. If you're lucky, you're looking at 7%. If you're a little riskier then you might pay upwards of 10%. If you're a downright financial mess, then you could be paying in excess of 20%. For an item that is merely a want (not a need), that doesn't make a lot of sense.

According to Orman, following these rules when making financial decisions can help us make better choices and feel more financially secure in them. What do you think? Do you feel you've made the right decisions when it comes to your finances? [Yahoo Finance]