Getting Control of Your Finances
by Patrick A. Taylor

Now that everyone is recovering from the splurge of holiday shopping, reeling from the bills that are coming in about now, it’s probably a good time for an article on managing personal finances.

Have you noticed, by the way, that you get fewer pieces of junk mail trying to entice you to buy merchandise these days? Most of the mail I get is from credit card companies wanting to purchase debt. That’s right. Business people know the economy is down and people can’t purchase things like they used to, so instead of selling a product, finance companies are trying to obtain the interest you’re paying on old purchases. And it’s very lucrative. Robert Kiyosaki notes in his book, “Rich Dad, Poor Dad,” that the game of money is all about who owes money money to whom.

The famous humorist Kin Hubbard once said, “The safest way to double your money is to fold it over once and put it in your pocket.” He was a wise man.

It seems today that everyone wants to know how to make lots of money on the Internet, or get rich quick in the stock market, or triple the income of their home business. However, if we aren’t good stewards with what we already have we will find that no matter how much money flows to us, we will always be struggling.

This article addresses the topic of plugging the holes in our money sack and studying some universal principles of money management. 

Our consumer-driven society wants us to purchase every new gadget and gizmo that comes out. We are subjected to a constant barrage of advertising to get us to buy, buy, buy. Buy an expensive home on a 30 year loan. Lease a new car instead of buying (generally a bad idea, see “Pat’s Vehicle Purchase Guide” at www.patsplace.bigstep.com for more info...). And worse yet, offers for credit cards are pouring in getting the American public further and further into unsecured credit card debt.

If you told people that their credit cards were completely paid off today, most of them would exclaim, “I’m rich!!!!” 

How do you compare to the following statistics?

* The average credit card balance is approximately $7,000.
* The average interest rate is 19%.
* Late fees are $25 or more.
* Almost half of American households have trouble making 
minimum payments on their credit cards.
* Last year over 1 million Americans filed for bankruptcy!
(the highest in this nation’s history.)
* The average credit card would take 25 years to repay making
only minimum monthly payments.
* Americans who earn less than $25,000 have virtually no savings!
* Fifty-five percent of Americans have a net worth of zero, or less.

Add to these alarming statistics the talk of a coming recession or full blown depression predicted by some economists around 2007, and the fact that our Social Security System is going to be in serious trouble by 2011. Are you counting on Social Security to provide you an income during retirement? Every economist says you’d better have another nest egg set aside in the form of investments, IRAs, 401Ks, and other funds.

Do you remember your parent’s advice of living within your means? Live on less that you make, and save some money? Put enough money aside so that you can live for at least six months if you lost your job tomorrow? You know, the older I get the smarter my parents become! When I was 17 they didn’t know anything, but in the past 20 or so years they’ve become geniuses. It’s true. You need to live on less than you make! Unfortunately, most of America is only one or two paychecks away from homelessness.

This is not a popular concept in today’s spend-thrift environment, but we need to take mom’s and dad’s advice seriously.

Are you swimming in consumer debt? In over your head in your house and car payments? Do you get a sick feeling in your stomach when you think about your mounting bills? Do you think winning the lottery is the only answer to getting out of debt? Take heart and think again.

The first word I’m going to give you is “discipline.” You have to make a conscious decision to change your spending habits. It’s hard to change habits, but if you develop just a couple of new spending habits, it will make all the difference in your life.


JOHN ROCKEFELLER’S TEACHINGS ON MONEY:

Want to live like a billionaire? Let’s look at the four money principles he taught his children:

1. Earn your money.
2. Give away the first 10% to charity.
3. Pay yourself the second 10% (savings/retirement).
4. Track every cent.


STEPS TO DIGGING OUT OF DEBT

Do you realize that you could be COMPLETELY debt free in just seven years? I don’t just mean paying off your credit cards in seven years (although for some this would be quite a feat), but I mean you could have everything paid for including your house and car! And have some savings set aside! (See page 51 of “The Four Laws of Debt Free Prosperity. You can get it at Pat’s Bookstore at www.patsplace.bigstep.com.)

If you follow these steps, you could change your financial future. These are sound time-honored financial principles that you can find in many books. That’s why I like the library! It is truly a wealth of information. 

1. The first thing you need to do is fill out a personal financial statement to determine your net worth. This may be depressing at first, but you need to know exactly where you stand. 

2. Then break out your credit card debt. List each card separately, and write down the balance and interest rate for each card. Jot down the toll free customer service phone numbers for each card because you’re going to be making some phone calls in a few moments.

3. Now call each credit card company, starting with the one with the highest interest rate. Tell the customer service representative that you’ve been a good customer, but that they are charging you too much interest, and if they don’t give you a much better interest rate you are taking your business somewhere else. You will be pleasantly surprised that most of them will instantly lower your rate by 3% to 5%. This could save you hundreds or even thousands of dollars depending on your total indebtedness.

4. If possible, transfer the balances of your higher interest cards to a lower interest card. Be certain that you are not penalized with a higher rate or extra charges. Most cards these days actually give you a promotional incentive rate to acquire your balances. Be sure you’re not going to get socked with a higher rate when the promotional rate ends. Now cancel your higher interest cards.

5. This is the part that’s going to hurt. STOP USING YOUR CREDIT CARDS!!!!! If you haven’t discovered this already, it can get pretty expensive buying toothpaste and candy bars on credit. Buying a Coke at 19% interest can hurt your cashflow.

6. Do some “plastic surgery.” Cut up all of your credit cards. One debt reduction guru suggests that if you feel a need to keep just one card as a security blanket, then take that one card, put it in a coffee can, and fill the can with water. Then put it in the freezer so that your credit card is frozen inside the can. This will keep you from making impulsive purchases. Before you do this, be sure that you have separate files for each card with the account information handy so that you can administrate each account. This simple act could save you 30% or more in the next year.

7. Reduce your expenses so that you have more money to put on your debts. We are going to find at least $100 per month extra to put toward your debt. More on that in a moment.

8. Make minimum payments on all of your credit cards...except the one with the lowest balance. Then put all that you can on that one card until it’s paid off. When that debt is retired, take all the money you were paying on that card and put it toward the card with the next lowest balance. This is called snowballing. Do this until all of your cards are paid off!!!! Then, do the same with your car payment. Then with your HOUSE payment!! You will be astounded at how your house payment will begin disappearing when you start doubling up on your payments! Yep.

BUT I DON’T HAVE AN EXTRA $100 - $200 PER MONTH! WHAT DO I DO?

1. Get a small pocket notebook and track every penny you spend for one month. And I mean EVERY penny. Don’t buy a candy bar from a vending machine or plug a parking meter without writing it down. You are going to be a penny-pinching detective, seeking out every clue on your trail of expenses. Don’t forget to write down any recurring expenses that may be automatically charged to your credit card (cancel these expenses if you can), any checks you write, any purchases made with a debit or credit card, any cash purchases, any and every monetary transaction!

2. At the end of the month determine which are fixed expenses, and which were discretionary expenses. Did you eat out when you could have eaten at home? Did you go out to a movie when you could have rented it cheaper, or borrowed if for free from the library? Do you have a cable television subscription? How many premium channels do you subscribe to?

3. Then look at your fixed expenses. Maybe you can change some of those “fixed” expenses. Consider refinancing your house (interest rates have gone down recently and you might save a considerable amount by refinancing). Maybe you could trade down for a cheaper car with no payment or a lower monthly payment, which would allow you to put more toward your debt (See “Pat’s Vehicle Purchase Guide...”).

4. Try this little trick: Don’t carry money with you. You will find that if you don’t have money, or a credit card, you won’t spend as much. (Not brain surgery, but it was a shocker to me!)

5. Plan your purchases in advance. The more in advance you plan your purchases, the more money you will save. Especially on things like airline tickets. The further in advance you can plan your purchases, the less you will spend. Also, buy things in the “off-season.” Need an air-conditioner next year? Try purchasing one in October or November and I bet you’ll save a bundle! Buy it in June or July and you’ll pay top buck.

6. Remember to put some money aside in your savings account every pay period. At first you may not be able to put all 10% you are paying yourself into some sort of savings or retirement account because you are reducing your debt. However, you should put a little money aside in a savings account every week. There are many who would question the wisdom of putting money into a bank account at only 2% or 3% interest when you have debt which is incurring interest at a rate of 19% or 20%. The reason many financial planners believe in this logic is because people need money for a rainy day, for some unexpected purchase. If you have no savings, then you are forced to put that expense on a credit card which runs up your cycle of debt. Putting some money away for savings gets you in the habit of saving. If you get in the habit of living on 80% of your income and paying cash for your purchases, you will learn to make wiser decisions and live within your means.

7. “What about when I get a great deal “on-line” which is planned and will save me future dollars? They only take credit cards. What should I do?” My suggestion is to get a debit card so that the money is coming directly from your checking account, or if you put the item on a credit card, immediately write a check to the credit card company as you are making the purchase so that you are still operating on a “cash only” basis.

In his book, “Rich Dad, Poor Dad,” author and businessman Robert Kiyosaki notes that the rich delay their gratification. They do not buy impulsively, but reward themselves with fine things only when they can afford them without incurring debt.

Instituting this discipline in your life will be difficult at first, but you will soon reap the rewards of debt-free living. As you work toward managing your current assets and income, study up on other ways to increase your income for the future. One book I highly recommend is “Multiple Streams of Income,” by Robert G. Allen. You can get it at your local library or get it for permanent reference at Pat’s Bookstore, http://ptgenterprises.vstorereading.com 

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