Getting a Hold of Your Finances.
1. Credit cards form the large majority of debts folks discharge in bankruptcy. Unwise or excessive credit card usage always leads to disaster. How do we get out of this trap?
Did you know that nationwide credit card debt has matched the level it attained before the 2008 housing collapse? Although “binge” spending is down, millions of folks continue to live beyond their paychecks—spending more than they make every month—while covering the shortage with credit cards. Not a large amount perhaps, but month in and month out. Deficit financing isn’t just done by the government. But governments can always print or borrow more. When consumers reach their credit limits additional credit is hard to come by. The slightest bump—a cut in hours, an illness, a new baby—can put you in a real jam. What I often see in my office are folks who are surprised, even thunderstruck to learn the extent of their credit card problems.
This stems from the basic fact that credit cards insulate us from where we really stand financially. They permit us to hide from reality. They create a comfort zone that masks unpleasant facts and makes facing actual finances unpleasant and even frightening. Breaking out of that comfort zone just might allow you to avoid a trip to the bankruptcy lawyer.
As a first step: Today, this evening, take your credit cards out of your wallet and put them in a drawer. For one week carry only cash, checks, and your ATM card. Live only on money you actually have. See how it feels after a week. Studies have shown that folks will often spend as much as 100% more using plastic rather than cash. This is not surprising when we realize debt is the most aggressively marketed product on the planet. Use credit cards, if at all, only for real emergencies.
Getting control of your credit card spending is a huge first step to financial stability. It may take a few weeks to see real change, but try it as you would eat an elephant—one bite at a time.
2. I know saving is important, but I can’t seem to get started. I am so frustrated that I cannot see any way forward. Can you suggest a first step?
Something I often hear from folks is frustration at their inability to save money. Saving is a primary way to establish control over one’s finances. Saving is power. Here some tips to give you a handle on saving:
First: Go out tomorrow and set up an automatic savings plan with your payroll department. Have funds deducted from our paycheck go directly to a local credit union. It is always easier to develop a personal relationship with a credit union than a bank. (Plus, it’s more likely they’ll remember your name when you
call.) It’s easier to save money you don’t see. Make the deduction just a little higher than the most you think you can afford (you can always change it). And watch it grow. If you find yourself unable to keep your hands off the savings, consider increasing your tax withholding. You won’t see your money until you
receive your tax refund next spring, but you’ll have it all. This may be a little painful at first, but within a short time you won’t even notice it.
Second: Try “saving” an amount equal to whatever is spent on nonessential indulgences. Put a matching amount in a cookie jar for money spent on beer, wine, cigarettes, and designer coffee. If you can’t afford the matching amount you can’t afford that vente soy Frappuccino.
Third: Buy an interesting glass vase from a thrift shop and set it near where you empty your pockets at night. Toss all your pocket change in the vase. In six months you could easily have $100 saved. A small thing, but easy.
Developing the power to save is a huge first step toward financial stability. It may take a few weeks to see real change, but try it as you would start a long journey—with just one step.
3. I have put my credit cards aside, and am now just using my debit card and cash. Are there any times when I should not use my debit card?
1. Try to avoid using a debit card online, since it’s connected directly to your checking account. There is more danger if the number is compromised; plus, it’s much harder to deal with fraudulent charges. You are more protected using a credit card (but get it paid off quickly).
2. Never use a debit card for big-ticket items. With a debit card you have fewer protections if a transaction is contested.
3. Never use a debit card to post a deposit—even if not later used the amount in your account will be temporarily frozen.
4. Be aware when using debit cards for gasoline or hotels. The merchant will often place a “hold” in a sum far greater than the transaction amount.
5. Be careful using your debit card at a restaurant. Restaurants are one of the most frequent locations for stolen card information. Rip-offs impact your bank account and are harder to reverse.
Knowing when and when not to use your debit card will give you more power over your finances. It may take a few weeks to see real change, but try it as you would start a long journey—with just one step.
4. What are further tips on controlling my finances?
First, don’t view your whole paycheck as a source for spending—set yourself an allowance from your paycheck–money that is not for groceries or paying bills—that extends to the next paycheck. Then stick to it! When the allowance is gone, stop spending. Just as with not carrying your credit cards, this may seem hard at first, so try it for one week and see how it goes. I bet you’ll be motivated to keep at it.
Second, consider a triple play—insurance, internet, cable, and phone providers often offer substantial discounts when such services are bundled together. When reviewing plans, give consideration to giving up the land line. And reconsider that premium cable.
Third, make your lunch. Sounds so simple, but it’s hard to spend less than $20 for lunch at a restaurant these days. That could easily amount to $80 or $100 per week. Pull out a loaf of bread, jars of mayonnaise and mustard, some lettuce, lunch meat and sliced cheese and make four or five sandwiches! Store each one in 4 its own zip-lock bag and toss them in the fridge. If you don’t use them all in a week you’ve got a handy snack for the weekend. Try stashing the savings in that vase where you’re saving your pocket change. The savings could amount to $500 in just a couple of months.