My last article spoke of the effects and results of living paycheck to paycheck. If you’re like I am, you’ll be careful about your spending choices. Man, just when you think you have enough and don’t have to spend money on a “new one”, a new one comes out and well, some of us just have to have it. And there we go again. Spending money because it’s out there. We want it because we don’t have it but we don’t truly need it. Over many years the credit card industry has fueled this American behavior of living above your means. I know. I was that guy with credit cards and large credit card balances. I’m not alone! Today, i don’t use credit cards. Think about that. If I cannot afford something, I plan and save for it! Interestingly enough, I spent most of my adult life buying recording gear I couldn’t afford. The owner of the Pro Audio store was trusting enough to allow me to have an ongoing account at the store. So spending 3k to 5k wasn’t unusual. Buying that new MAC computer was another big one especially since the old one was 1 year old. Well, i’m not like that anymore! Something snapped. Something changed. I see no reason to upgrade my Iphone 3G because it is slower that the 3GS and the 4G. It seems to meet my needs and that $200 upgrade can be better used elsewhere or in my Roth IRA. Yes? Yes!.
The solution to any problem is the basic awareness of the problem. Simple but true. I know my life is significantly better without credit card debt. Years ago I can remember when buying an investment property with nothing down. The loan officer would ask “do you want any cash on top of the price of the home?” I thought that this would be an opportunity to pay off part (70k) of my credit card debt. So, switching from credit card debt to real estate debt is what I did. I can recall this happening many times. Crazy? Oh yes. Very crazy. That was the only way to have gotten rid of my credit card debt in those days. It’s much like trading addictions. The real estate debt was much cheaper money than credit cards! The average family in the united states maintains $11,000 in credit card debt.
For some, paying your credit cards off in full every month is very effective. Using that credit card helps offset your spending and other financial commitments during the month. Credit cards are convenient. Credit cards remains an important financial tool in many households, and realistically I doubt that this is going to change anytime soon. It’s the abuse of that mere convenience that will land you in debt. Awareness!
How can you change your ways? Awareness can be very powerful. For me, having everything under one roof is very helpful. Being able to see my expenses, investments, expenditures, monthly bills, etc, is eye opening! Hence awareness. Here’s a site I’ve begun to look at and while i’m not yet recommending it i’m offering it as an example of creation. Creating a space for yourself to alter your old habits and credit card madness can be extremely powerful. Check this out. https://www.mint.com
I found this sobering fact sheet and wanted to share it with you. If you think this is not real, think again. It’s your neighbor, your parents, your friends and nobody wants to talk about it because it’s embarrassing, painful, frightening and they can’t find a way out! They’re stuck. Are you stuck? Visualeconomics.com says:
The American Family’s Financial Turmoil
“The average American family is in a serious financial position that leaves no room for financial problems and incorporates little planning for future financial needs. Meet the average American family…
The average family has $3,800 in the bank. No one in the family has a retirement account (in 50 percent of American households). Their neighbors (the other 50 percent) only have $35,000 saved for retirement. The family has no mutual funds, stocks or bonds. The house is worth $160,000, but the family owes $95,000 on it to the bank. They make $43,000 a year, but can’t manage to pay off a $2,200 credit card balance.
The average American family’s finances, by the way, are in shambles. Forty percent of working Americans are not saving for retirement. Twenty-five percent have no savings at all—retirement or otherwise. The average household has $117,951 in debt. That’s enough to buy 7.5 2010 Honda Civics.
The combined amount of personal debt held by Americans is $2 trillion. This is about the GDP of England. Twenty-four percent of workers have postponed their retirement age in the past year. Eighteen percent of people polled are very confident about having enough money for retirement.
Among Americans, 7.7 percent don’t have a bank account. Only 1.7 percent of Utah residents don’t have a bank account, while 16.7 percent of Mississippi’s residents don’t have a bank account. Less than 4/10 of American adults have an emergency fund to fall back on in the event of some financial disaster.”
Budgeting 101 (from About.com)
“For most people, the word “budget” conjures up thoughts of penny-pinching and the unpleasant task of crunching numbers. This couldn’t be further from the truth. A budget is at the cornerstone of a solid financial foundation, regardless of your situation, and it isn’t that hard to do.
A budget is nothing more than a breakdown and plan of how much money you have coming in and where it goes. Could you imagine a business becoming successful if it didn’t keep track of its income and expenses? The same holds true when it comes to your personal finances. If you don’t know how much money you have coming in and where it goes, your road to financial success will be a difficult one.”
The first step in creating a budget is to determine how much income you have. This is quite easy and typically only requires you to take a look at your pay stub. Of course, if you’re married, be sure to include your spouse’s income as well. In addition to your regular pay, you’ll want to also include any other sources of income you may have, such as dividends, interest, a side business, and so on.
Now that you know how much income you have coming in, it’s time to take a look at your monthly expenses. Start with the regular and fixed payments you have, such as your mortgage or rent, car payments, insurance, debt and taxes. For most people, these are going to be relatively fixed, meaning you can’t easily change the amount that is due each month.
After you’ve listed your fixed monthly expenses, it is time to dig deeper to find out where the rest of your money goes. Take out your checkbook or pull your latest bank statement to help you with this step. Jot down how much you spend on things like utilities, groceries, entertainment, subscriptions, and so on. This handy worksheet can help you with keeping track of expenses.
The Bottom Line
You should now have all of the information needed to help you create your budget. So, go ahead and total up your monthly income and all of your monthly expenses. Subtract your expense total from your income total and you’ll have either a positive or negative number. If you have a positive number, congratulations, you are spending less than you earn. Don’t worry if you have a negative number. The whole reason for creating a budget is to identify deficiencies and find out how to address them.
Now that you can visually see how much you fall short, you can adjust your spending or saving in certain areas to improve the situation. Often times you’ll realize that by just making a few small adjustments to your spending habits, you can significantly improve your situation. Maybe this means cutting back on one of your magazine subscriptions, eating out one time less a month, or even just hitting the matinee instead of the prime time movie. Typically, just saving a few dollars here and there can be enough to not only make sure you spend less than you earn, but also apply a few extra dollars to things like high-interest credit card debt or your retirement savings.”
Turn on the nightly news. Try CNN or FOX News channel. The news about the economy of the US is tragic. Our entire financial system is now failing. This is a stunning account of financial devastation and failure. Obama’s bail out’s have failed, China owns us! Our Social Security is about to vanish and none of us will ever see a pension again. The balance of home ownership and renting is upside down and interest rates are probably going to soar as they did in the 80s. We are in trouble. Do you really need to be indebted to Visa or Master Card?
Get smart. Get goin’. Get real about your family’s money. Stop unnecessary spending. If you can’t afford to pay cash, don’t buy it. Save for it. Change your money habits if you are in debt and can’t see the forest through the trees. Remember: Credit card companies cannot survive if you pay off your credit cards!
Remember: The primary solution to any problem is the awareness. Start there!
Your Financial Junkie
Success is earned!
Don’t spend money you will have!
Spend only money you do have