How much is too much? Some people believe that as long as they can make the payments on time, most of the time, they're okay. But what about the decisions made to make that happen?
When a recital or sporting event is happening at school, what goes through your mind? Are you thinking of ways to let the kids down easy so you can put in some extra hours? When you plan your vacation do you look for excuses for not getting away?
Even if you seem to be meeting your obligations, are you finding yourself in a position where you have to give up more in order to make do? This could mean that debt is controlling you rather than the other way around. And until you can change that, the stress and depression that accompanies potential family disappointments will continue.
There are solutions that can help you not only regain control of your life but also allow you to eliminate debt and build a solid financial future as well. I call them my "10 Tips To Freedom" and they are simple to put into action.
- CHANGE THE WAY YOU THINK. Before anything can happen in your life, it must begin as a thought. If you can change your thought pattern, you can change your life. Most people think about making money. They go to work and get paid. That becomes their sole means of generating cash. Suppose you started thinking financially and created ways for money to work for you? Let yourself start to develop places to put your money where it will do the most good.
- STOP CASHING PAYCHECKS and any other income that comes your way. Commit to putting the check directly into the bank and not doing anything with it for at least 24 hours. For many of you this will be the first time you've really taken control of your money. Take a breath and use the money at your pace rather than having it slip through your fingers unnoticed. You'll find that doing this one thing alone will often leave you with a few dollars extra that was never there before.
- TAKE A HISTORY LESSON. Look back over the last two years to see what you've been spending (or charging) your money on. Try and spot trends and consistent spending patterns. Then, use your creativity to develop ways to accomplish the same tasks at lower prices. (For example: If you always book a vacation for the same time each year but wait until the last minute, you may be paying a premium price. Look for early booking discounts. Better still, see if you can make an early deposit at a discount and then send them money each month until it's time to go.)
- ARRANGE YOUR DEBTS. Write down everything you owe with the balance as well as the minimum payment. Then rewrite the list from lowest balance to the highest. If two balances are the same, the higher interest rate goes first. You will then attack your debts from the smallest to the largest. Most people give up on eliminating debts because they try and pay their largest balance first. This takes longer to notice any progress and becomes demoralizing. By going after the smallest debt first you can accomplish two very important tasks. First, you demonstrate to yourself that you can eliminate debt from your life, and second, you're doing it correctly.
- CREATE BANK ACCOUNTS WITH SPECIFIC PURPOSES. Just like corporations who have separate accounts for things like payroll, research, and other things, you can have accounts set up for a specific purpose. Start with your checking account which is where all money will flow through and add specific accounts for things like debt elimination and income security. (For a free complete list and explanation of suggested multiple accounts email info@creditdiet.com).
- GIVE MONEY AWAY. One of the ways to realize that you are earning enough to eliminate your debts is to give some away. Even if it's only a few dollars to your church or local kids programs, you'll feel better. You can tell yourself that if you can afford to do this, you have more than enough to get yourself out of debt. You also take more control and put balance back into your life by including charity as part of your financial future.
- START SMALL BUT START. Too often people think about the future. Their thoughts go something like this. "As soon as I have some money, I'll start saving." As soon as never comes. If you put aside a dollar, you're closer to your goals than you were before. As soon as you make more than the minimum monthly payment (even if it's only a few extra dollars) you take control of your debts. Don't be overwhelmed by how deep you are in debt. Understand that it took a while to get this way and it will take a while to get out of it.
- GET CREATIVE. Let your mind think before you act. Instead of saying that you can't afford something, ask yourself, "How can we afford this?" and wait for the answer to come. Maybe you have some things that you can sell that you no longer use. Maybe you can accomplish your goals differently by spending less. The only way to find out is to allow yourself time to think.
- SET SMALL GOALS. Try this. The next time you go food shopping, look at your receipt. Then set a goal of buying better food for your family and spending 5% less. This will help you really look for the best prices at the highest quality. Now, if you can't quite accomplish your goal, here are the possibilities. You spend exactly the same as you always did but now your family eats better. You buy exactly the same quality of food that you always buy but you spent less to do it. Either way, changing your focus allows you to improve your life.
- UNDERSTAND THAT YOU'RE NOT ALONE. According to government studies 87% of disposable income is being used to maintain debt. That means many Americans are making little more than minimum monthly payments. In addition, by retirement, less than 5% will have solved their money problems. That means if you want a different financial future you need to do things differently than you've been used to. 70% of Americans list money as their top concern.
There are many formulas to determine if you are in trouble with debt. You can do all kinds of calculations to see where you are and what you're worth. There are simpler ways to determine your financial situation. But the consequences of debt are never fully explained. Ask questions requiring honest answers.
For example. Suppose you charged $2000 worth of furniture at a local department store. If all you were able to do was make the minimum monthly payment, how long would it take to pay the furniture off? The answer is over 30 years. If that's not enough of a deterrent, consider this. If you made those same minimum monthly payments over the same 30 years into an average mutual fund you could earn as much as $48,000 up to $250,000 depending on your rate of return.
Or you can look at it this way. If you earn $50,000 a year and lost your job, what would happen if you could only find jobs paying $40,000? The real answer depends on what you owe. The worst position to be in during your working life is to be in a situation that requires a certain income to survive.
Conversely, eliminating debt can change your working perspective. Perhaps you could finally take the job you've always wanted because it makes a difference rather than what it pays. Or, you can work at the higher income level knowing that you can retire sooner. The bottom line is, when you have control over debt (for some people, including myself, control means elimination), you have options. Options eliminate many of the pressures that work can bring. Options also provide the flexibility to enjoy more while spending less.
Don't be fooled by the simplicity of the preceding steps. Most powerful solutions are rooted in simplicity. However, none of the above ideas will do anything for you unless you are willing to take action on your own. Debt is not evil in and of itself. However, when your life is controlled by what you owe, I believe living is less than what it can be.
The next time you're considering making a purchase, ask yourself this powerful question. "Would you purchase it this way if you were wealthy?" If the answer is "no" that could be why you haven't achieved your level of wealth yet.
John Fuhrman is the best-selling author of “The Credit Diet : How to Shed Unwanted Debt and Achieve Fiscal Fitness”
and several other books. For tips on reducing your debts faster, email
info@creditdiet.com and write “Speeding Up The Process” in the subject line.
You can also visit John at www.creditdiet.com.
