Credit lesson: If you can't buy it, don't charge it

Planning is key to develop the financial strength to weather many of life's monetary storms, and developing a personal financial plan can start at any age — the sooner the better.

At the Opportunities Industrialization Center of Ouachita, students who step in the doors to earn their HiSET, take a nursing class or Microsoft training also learn basic lessons in financial literacy, from balancing a checkbook to managing credit card debt.

For some students, the lessons help them proactively plan for a future of responsible spending and debt management while others use the curriculum as a strategy for correcting mistakes already made.

Getting started with credit and budgets

William Smith, executive director of OIC, said the main issues many of his students face involve impulse spending, lack of planning and mismanaging of existing credit.

"Credit card mismanagement is the number one financial problem in America," Smith said. "Once you mismanage that credit card, it can lead to a lot of problems."

Over time, Smith and other instructors have learned many students don't understand what interest is and how much money is lost over time on outstanding loans and credit card debt. The other side of the coin is using debt responsibly to build a credit history that helps prepare for major purchases, such as a car or home.

"... We go over with them the advantage of how to have a good credit report, how to research their credit report, how to improve their credits scores and how it's good to have a credit card to establish a history of responsible cash management, which will improve their credit score," Smith said.

READ MORE: Who files for bankruptcy? The answer might surprise you

Consumers are entitled to a free review of their credit report from each of three credit reporting agencies, Equifax, Experian and TransUnion, through the website www.annualcreditreport.com, a site set up to provide the free credit reports authorized by law. While credit reports do not feature a consumer's credit score, they provide an overview of outstanding debt and possible red flags, such as delinquent accounts.

According to the Federal Trade Commission, a first step toward taking control of personal finances is to do a realistic assessment of money earned and money spent. Some expenses, such as rent or car payments, are set, but other expenses, like food or entertainment, can vary. Keeping a budget can help identify spending patterns and prioritize spending to focus on necessary expenses first.

At OIC, people learn how to budget and the importance of starting out with a household budget to stay on top of their financial needs.

"We have a program called till debt do us part," Smith said. "We go over the five D's of debt. Debt will divide. Debt will destroy. Debt will depress you. Debt will deny you and debt will discourage you. Then we go into how to reduce your debt. Number one is to change your attitude toward money to change your financial position. Second is how to establish a financial budget. Third is credit card management."

Smith said students are taught that if you don't need it and can't afford it, you shouldn't charge it. He also targets impulse shopping and assessing what led those already in debt to that point so they can avoid repeating their mistakes in the future. How to get out of debt is also a focus.

The U.S. Securities and Exchange Commission recommends consumers paying off debt put away the plastic, know what you owe and tackle paying more on cards with the highest interest rates while maintaining payments on cards with lower interest.

Smith said without budgeting practice, anyone who leaves school and goes out into the real world is likely to make common debt mistakes that will then take years to recover from.

Looking at Retirement

What happens after a person has learned to spend responsibly, save money and plan for retirement? Are their still questions to be asked? In many instances, the answer is "yes."

Even those who prepare for a financially fit retirement must manage their assets with a delicate balance of return and risk as their golden years approach.

Ken Fletcher is the founder of the wealth advisory firm Fletcher Financial Group. He said his company helps people to and through retirement — to plan for wealth for life and beyond.

"It’s never too early to plan for your retirement, but there could come a time where it is too late," Fletcher said. "Getting started in your 20s is a good thing. Waiting until your 50s is not a good thing but we might still pull it off. Waiting until your 70s? It ain’t going to work."

Planning modules used at Fletcher include income planning, investment planning, tax planning, health care planning and legacy planning.

Income planning looks how to guarantee a routine "check" every month that allows for an enjoyable retirement and fills the shortfall between a pension or Social Security, while investment planning looks at creating a sensible investment portfolio.

Those over 50 need a plan of investments that have a chance to grow yet limit exposure to market downturns.

"What brought you successfully to retirement might not be the philosophy that can take you through retirement," Fletcher said.

A primary component of planning many people fail to focus on involves health care and preparing for the expense associated with long-term care, which includes assisted living, home health care and 24-hour care in a nursing facility.

"I would say 90 percent of the people who come to us for retirement planning have built their retirement plan on a two-legged stool," Fletcher said. "That two-legged stool is they will be prepared to have income, and that is good, and they will be prepared to have legacy assets they want to live on after they are gone.

"And yet two out of three people after age 65 will experience some kind of long-term care event and it’s pretty much unplanned for and this third leg of the stool, being prepared for an unplanned expense, can protect the income you have for your spouse and protect the legacy assets you wanted to leave your heirs. If you don’t have this third leg it can literally wipe out one or both of the other legs."

Fletcher said creating a health care plan can help individuals, by using existing rules and current law, to preserve family assets. Planning ahead is best, but it is possible to draft a crisis plan after an event has already occurred.

Jordan Smith, director of Fletcher Financial Group's Legacy Division, said many people believe there is nothing a person can do after entering a nursing home to protect assets for family members, but there are steps that can be taken to preserve money many saw as college funds, charitable donations or gifts to churches.

"If they come down to a crisis plan and no preplanning was done, that is a big burden — the mental burden — but usually when they leave they have a little bit of financial peace," Smith said.