Work weekends? Okay. Volunteer to lead a field trip of middle
schooler’s to a sex education program? Sure. Try your hand at snake
handling? Why not?
Surely it has to be better than the utter purgatory of
– no, don’t say it – a financial diet.
”
Budgeting,
”
a word that ranks somewhere near
”
nails on a chalkboard
”
on the list of all-time worst aural experiences, doesn’t have to
be complicated, according to experts, but that doesn’t mean it’s
not hard.
Work weekends? Okay. Volunteer to lead a field trip of middle schooler’s to a sex education program? Sure. Try your hand at snake handling? Why not?
Surely it has to be better than the utter purgatory of – no, don’t say it – a financial diet. “Budgeting,” a word that ranks somewhere near “nails on a chalkboard” on the list of all-time worst aural experiences, doesn’t have to be complicated, according to experts, but that doesn’t mean it’s not hard.
“This stuff is very simple, but it’s not easy because it takes self discipline, and for a lot of people, that’s one quality they lack” said Carmela Vignocchi, a spokeswoman for the Consumer Credit Counseling Service. “As a society, we haven’t developed self-discipline and that quality of delayed gratification. (The things that are going to get you out of debt) are really simple, really powerful, but they’re not easy to do.”
According to Vignocchi, the first thing anyone reading this article with a resigned moan should do is refocus. Toss the word “budget.” Like yo-yo dieters who crave sweets most when telling themselves all sugars are evil, budgeters who strap themselves into a rigid plan are headed down the road of defeat thanks to the negative connotations they’ve already associated with the word. Instead, Vignocchi prefers the term “spending plan.”
The phrase helps money-conscious consumers to focus on goals rather than short-term constraints, said Vignocchi, who encourages those seeking to get out of debt or simply to save more effectively to make a list of their priorities.
“Do you want to buy a new car?” asked Vignocchi. “Do you want to get out of debt? Do you want to make your credit strong? Do you want to save for a computer upgrade?
Every single person – Bill Gates included – has to make choices about how he’s going to spend his money.”
Once the decision to pursue a goal has been made, the means to that end, while not glamorous or exciting, are fairly simple and straightforward, according to Tracy Newquist of Newquist and Newquist Private Wealth Management in Morgan Hill.
“Don’t go out and spend frivolously,” said Newquist. “If you’re going to go do something, shop around. Pick the best prices if you’re going to be traveling. Everything you look at, ask, ‘Is it a need or a want?'”
For built-in necessities – diapers, for instance – plan on setting aside the money you’ll need to cover the expense at the beginning of the month, according to Newquist. Dining out for lunch, on the other hand, is a luxury, according to money managers, and an easy savings once the habit of dining out is cut.
Simply purchasing $15 worth of designer coffees per week can cost $780 in a year. Just imagine what axing all those $7 and $10 lunches would do.
“There are really only two ways of looking at expenses: Fixed and variable,” said Newquist. “Your fixed expenses are the have-to’s. The variables are the things you can change. Can you carpool? Compare your bills and see if you can get a better rate on some things. Turn off your lights when you’re not in the room. It adds up.”
Spenders can see just how much they’re able to save by carrying around a small notebook for about a month, said Vignocchi. By jotting down every purchase, no matter how small, they’ll see just where they’re able to cut down on spending without sacrificing needs, she said.
Once an acceptable amount has been established for cutbacks, it’s time to apply that money in fiscally responsible ways. Decide on an amount, even if it’s small, that can be put away each month in savings and consider it a bill, said Jeff Welch, a Hollister-based financial planner.
“Get a monthly plan going early,” said Welch. “You’ll get trained to do it, so you won’t miss that money every month.”
If credit card debts have mounted, paying them off should become a primary goal. Like paying rent rather than buying or purchasing a luxury car that won’t hold it’s value, paying interest on credit balances doesn’t offer any return on an investment and places excessive drains on a middle-class bank account, according to Welch.
Vignocchi suggests putting a payment system in place by organizing debts on one piece of paper. Arranged in order of the interest payment, she recommends starting at the top, with the highest rate.
Make minimum payments on the other card, she said, and devote as much extra cash to paying off the high-interest balances as possible. Not only will the process feel good, but also it will free up money that has been devoted to paying interest charges for saving or spending as the former debtor sees fit.
One of the best investments a former debtor can make is establishing a solid retirement account by diverting as much as possible toward savings like IRAs, which allow those under 50 to invest up to $14,000 per year and those over 50 to invest up to $15,000 per year in untaxed money toward retirement.
The sooner a person starts, the better off he or she will be because interest compounds any addition to the pot.
“The time element is huge,” said Newquist. “If you put a 20-year-old and a 30-year-old who’s starting side by side, the 30-year-old won’t catch up. When you start earlier, the better. Most 20-year-olds aren’t going to put away money. They’re going to spend it like I did, but if you’re working for a company who has a retirement plan, invest in it.”
And while the temptation may be there to use those credit cards again, don’t. Once the cards are paid off, stick to a maximum spending limit and attempt to save the card’s usage for emergencies, advised Welch.
“Pay them off every month,” said Welch. “(Credit cards) are not another bank account.”
But getting rid of a card can be just as much of a no-no as spending too much on one, according to Newquist.
“This is the thing about credit cards that people don’t know,” said Newquist. “You don’t want 15 credit cards, maybe three. But say you have $2,000 on a credit card and you have $10,000 limit. Your debt ratio is 20 percent, but if you reduce your limit down to $2,000 you don’t have any free credit. One of the things credit companies look at is your available credit, and if you don’t have any, they are going to look at it.”
For more advice on structuring a budget, er, spending plan, consider consulting a financial planner who can help to organize goals and real costs.
Newquist can be reached at (408) 779-0699, and Welch can be contacted at (831) 630-1525. If you are overwhelmed by debt, call the Consumer Credit Counseling Service at (800) 901-2227, log on at www.GotDebt.org or visit their new office in Watsonville, opening April 13.
