Living Within Your Means, Part 4

Last time we looked at cutting back expenses, staying away from new debt, limiting FUN money to a set amount each month, and beginning the process of paying down debt.

So how do you go about paying down your debt? What debt should be the first to go?

Begin with a list. Yes, here we go again with another list. That’s right. You need to have a complete list of all of your debt. Do it this way.

Your list should have the following across the top:

  • Name of the lender or loan
  • Interest rate
  • Minimum monthly payment
  • Current balance due from your last statement

If you don’t get a regular statement because you pay online, get the balance due and interest rate from the current account information in your online account page.

Next, list all of your debt going down the page. Start with your mortgage if you have a home loan. Next add a second mortgage if you have one, home improvement loans, all lines of credit, all car loans with each car listed separately, boat loans, and RV loans. Then add department store cards, VISA, Master Cards, American Express, and Discover outstanding balances. Finally, add other loans such as student loans, medical debt, family loans, and any other loans.

If you do this list on a spreadsheet in your computer, it will automatically add the monthly payment column and the total balance due column.

Now you have a complete list of what you owe monthly and the total balance due. For some of you, this will be the first time that you actually see all of your outstanding debt on one list. That may be frightening. But look at it!! You actually owe that much. And it will get worse if you don’t take steps to get out of debt.

Here are two simple reasons why you want to get out of debt:

First, it’s expensive. Let’s say you’re out looking at a new Curved 65” HD TVs. And you work a really good deal and “get them down to $2000” and after all, what’s the big deal, on your credit card it will only be about $51 per month.

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What’s the big deal? That new TV will cost you over $1000 in interest. It will really cost over $3000. So is it still a “really good deal”? Paying for something over time with interest can be very costly. That TV will cost you 50% more because you used their money instead of saving and using your money.

Secondly, you need to get out of debt because, no matter how you cut it, it causes stress in your relationship. When all you think about or fight about is money, it hurts your relationship.

More next time on the best way to get the debt paid off….

Live Within Your Means, Part 3

How do you resolve financial problems and fighting when you don’t have enough money to pay all of your expenses every month?

First and foremost, you need to resolve as a couple to live within your means. It is purely a matter of your will and discipline. In some ways it is similar to being overweight. How do you get healthy and get your weight under control? Most people who are overweight readily admit they know they eat too much of the wrong foods. They know the answer is really quite simple: eat healthy and move.

And so it is with overspending. You need to get control over your income and what you spend.

On the income side, if you have the ability to work some overtime hours or get a part-time job until your debt if paid down, then do it.

On the spending side, you will need to cut any unnecessary expenses. And DO NOT add any new debt. No new car loans, no new vacation expenses, no new buying time-shares (even it if is a good deal), and no frivolous expenses of any kind. It is time to get your finances under control.

Simple Common Sense Marriage principle: You can’t get yourselves out of debt and live within your means by continuing to spend money the way you have been. Or put another way, you can’t lose weight and still have your cake and ice cream while you sit on the couch. Face it! You are going to have to make tough choices. Evaluate together all those categories of spending and eliminate what is unnecessary or figure out a way to accomplish the same objective with less or no money spent.

Make as much money as reasonably possible and cut all expenses except those that are absolutely necessary.

Michael R

Michael R

For example, a large frothy double shot extra cream caramel machiato in the morning and an extra-large very berry whipped cream smoothie on the way home from work are really NOT necessary. You WILL survive without them. And if my math is right, at about $4.00 per visit, that will save you about $40 per week, or $2080 per year.

And that’s just cutting ONE “I can’t live without it” expense!

Now you need to get to work. Only spend money on what is absolutely necessary. When you disagree on what is necessary, discuss this openly and work towards a reasonable compromise. Remember: You need to work at this together.

Caveat: Have “some” funds built in to your budget  for FUN money. Even those on a strict diet can have a small piece of pie or a brownie now and then. But set a limit to the fun money each week or month, whatever you work out, and stay within that limit.

The next Common Sense Principle is to take your savings from cutting back on expenses and begin to pay down debt. That’s right… Get out of debt. The sooner the better. More on this next time….