With all of the recent doom and gloom in the financial markets, it’s easy to get discouraged about your own financial situation. But here’s some good news for a change. While personal finance may seem complicated, it really boils down to 4 good habits that can make the difference between going broke or building up your net worth each month

Save money, Avoid Debt, Invest and Don't lose it Here's an edited version of a Mint article on 12 ways to improving your financial fitness

Just as with achieving a balanced diet or maintaining a regular exercise regimen, getting your financial house in order is easier said than done. What’s that they say about the best laid plans? A 12 step program can get you on the road to financial recovery.

Save money

1.    Know what you spend

The first step to growing your money is knowing your money.  Just by seeing that you spent $432 one month dining out with your friends, or that you went to Starbucks 37 times, you’ll change your spending habits for the better.

2.    Stick to a budget

Most of us really only have 1-2 “problem” areas.  Maybe it’s shopping, maybe its electronics.  Once you know how much you typically spend, set a budget 15-25% lower.  If you try to cut too hard too fast, you’ll never be able to stick to it.

3.    Find a checking account that pays interest

“Free” checking isn’t exactly free.  Sure you get free checks and no account fees, but most checking accounts pay no interest - zero, nothing.  Meanwhile, the banks are loaning your money out in the form of mortgages or business loans at 7-8% interest.  That’s how banks work.  If you don’t have a checking account that pays interest, you’re being ripped off. Consider switching your account to one of the many that allow your money to work for you such as an E*Trade Max-Rate Checking Account (2.9% APY on accounts over $5K) or an HSBC Online Payment Account (2.25% APY, open an account with as little as $1).

4.    Find a savings account that pays 3%+ interest

The average US savings account only pays about 0.5% interest.  With inflation at 2-3%, you’re actually losing purchasing power each year.  Find a high-yield savings account, money market fund, or CD that pays more such as WaMu Free Checking and Savings (3.75% APY, open with WaMu Free Checking) or E*Trade Max-Rate Savings (3.3% APY, open with as little as $1).

Avoid debt

5.    Know your credit score and correct your credit report

Your credit score determines the interest rate lenders will charge on your credit cards, mortgage, student loan, or car loan.  That means any mistakes in your credit report can cost you tens of thousands of dollars over your lifetime.  Unfortunately, 79% of all credit reports have an error, and 25% have an error serious enough to deny you access to credit.

6.    Eliminate late fees

About 35% of your credit score is determined by on-time payment.  If you’re late on a credit card payment, it could cost you much, much more than the $29 late fee - if you let it go more than 60 days, it can affect your credit score and cost you thousands.

7.    Don’t pay credit card finance charges

The average American carries $8,500 in credit card debt.  At a minimum payment of $100 a month, it takes 6.7 years, and $4,257 in extra finance charges before you’re in the clear.  If you carry a balance, one way to get some temporary relief is through a balance transfer. The best way out of this quagmire is to pay down your highest interest card first, or look for a balance transfer card such as the Citi® Diamond Preferred® Card (0% Balance Transfer APR for up to 12 months, no annual fee, 3% transfer fee) or the Chase Platinum Visa® Card (0% Balance Transfer APR for up to 12 months, no annual fee, 3% transfer fee but no more than $99).

8.    Get a credit card that pays you

Visa and MasterCard typically charge retailers 2-3% of each purchase you make.  As a consumer, you can get a cut of those fees in the form of cash back rewards.  Don’t settle for a card that pays less than 1%. A typical household can get as much as $300 a year back just for buying what it was going to buy anyway.

Invest

9.    Contribute to an IRA or 401k

Invest $100 a month in a tax-deferred account like an IRA or 401k, and at a growth rate of 10%, in 30 years you’d have $380k.  In a regular taxable account (assuming 20% annual taxes), you’d only have $229k.  That’s a $151k difference.

10.    Start investing and keep investing

Two simple steps can put you ahead of 99% of your peers.  First, have your employer automatically deduct from your paycheck to mutual fund account.  Second, grow that money in an index fund. 

Don’t lose it

11.    Create an Emergency Fund

An emergency fund helps protect you against all of life’s ups and downs, whether they be car repairs, job loss, or a leaky roof.  If you’re young, single and have no mortgage, strive for about 3 months expenses, or ballpark around $10,000.  If you have a house, kids, or both, strive for 6 months expenses, or around $20,000 - $30,000 for the average family. Be sure to keep your emergency fund in a high-yield savings account so that it continues to grow.

12.    Protect yourself with insurance

The right insurance depends greatly on your age and whether you have a family.  If you’re in your 20’s, you need renter’s insurance - it’s typically around $150 a year and covers theft and fire.  If you have a family, you need life insurance, health insurance, and disability insurance.