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Wyoming is #1

January 1, 2012

Yeah, they have a lot of natural resources, but they have made the most of it.

We can learn a lot about personal finance by studying how states spend their money.

A financial news corporation, “24/7 Wall St.,” explains it better than I can:

“States can do a great deal to control their fate. Well-run states have a great deal in common with well-run corporations. Books are kept balanced. Investment is prudent. Debt is sustainable. Innovation is prized. Workers are well chosen and well trained. Executives, including elected and appointed officials, are retained based on merit and not politics.”

Based on this criteria, let’s look at some of the top states.

With the fourth lowest rate of violent crimes, the sixth lowest unemployment rate and with 92.3 percent of the adult population having at least a high school diploma, Wyoming tops the list. The state’s natural resources help, but it has used the money wisely and has invested a lot in education.

Nebraska is second, with the second lowest unemployment rate, low poverty and a high graduation rate. Third is North Dakota with the nation’s lowest unemployment rate at 3.5 percent. A combination of agriculture and natural resources has allowed North Dakota to be one of two states from 2009 to 2011 to have a state surplus every year.

The bottom state is California, and Illinois came in 49th. Both states have expenditures higher than tax revenue. They also have received credit downgrades in the past couple of years, having the two lowest credit ratings of all the states.

We are able to learn from the states on an individual basis. From California and Illinois we can learn when purchasing a home, do not buy more than you can afford. It is best to have a 15-year fixed mortgage that is well within your budget. Stay away from exotic and interest-only mortgages.

Make sure when you borrow that you can afford to pay the loan back. If your credit is in trouble, like California and Illinois, it is more difficult to borrow, and you will pay more for the money you borrow. Ideally, you should have a plan to get completely out of debt so you don’t have to worry about borrowing more money.

The states at the top of the list share some common characteristics we should emulate as individuals. They are conservative in good times with their money. They invest in education. People in the state generally buy houses they can afford. The states in the middle did not see a big boom, but they also did not have a large crash in 2008. Slow and steady has been the theme.

One of the best investments you can make is in your own education. People with more education generally make more money. Also, do not buy more home than you can afford. There are many people facing foreclosure as they bought a house they thought they could quickly flip and make a quick buck. Plan for the long-term. When times are good, don’t go crazy; save for the future and continue to make wise decisions with every dollar you spend.

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