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

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.

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

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.

Signals of A Stock Price Increase Rise in EarningsIf 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 DecreasingIncreasing 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 IndustryWhen 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 BuyingCompany 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 AnalystsAnalyze 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

unload them.

Rumors of Takeover BidsRumors 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 GroupsA 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 RatingThe 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 DemographicsIf 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 MarketThe 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.

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, many investors find them attractive long-term investments.

Signs of Bad Stock Earnings Slow DownProfit 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 DownBefore 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 LogicToo 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 SellingHeavy 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 CutsFor 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

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 ProblemsSometimes 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.