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Playing fireman with your finances? Simple. spend wise, save often!
Over and over again, people fall into financial traps or potholes and end up having a big problem getting out of them. In my experience this has happened to me more than once, but fortunately for me, I was able to dig myself out without much difficulty. Back then, I noticed that as soon as I dug myself out, I usually had a couple of months hiatus before I went right back into old habits. Ultimately I realized to change these occurrences what I needed to do was change my mindset about money and frivolous spending.
A realization and a strong desire to adhere to collective financially prudent rules usually follows a period of financial stress that forces a person to realize it is not worth getting into such harrowing situations in the first place. It gets to a point that playing fireman with personal finances is just not the way to go. Instead, you set up checks and balances just as a homeowner would install a smoke detector that lets it be known when the chances of a fire is more probable. For me, I had to re-educate myself on money management, figure out what worked best for me, and tried to apply it. What should you do to make sure you don’t fall into money traps? Below are common and not so common anti-snares to keep in mind. A couple of them are splashed all over the web, but it never hurts to be reminded of them over and over again. I know that helped me!
The Issue of Desire and Responsibility
There is a need to understand responsibility and what factors are dependent on that. With financial stress, the fortunate people are those who are single and independent. Depending on problem depth and current cash flow, the stress is relatively less and those your choices affect are relatively less. However, dynamics rapidly change when others (usually a spouse and/or children) are dependent on you, and your responsibility with the finances that affects them. If there is a lack in acceptance of responsibility that financial fidelity requires an individual, every other attempt at salvaging is moot.
Standard of Living
Next step is to pinpoint the right standard of living. If we can’t accurately hone into where we fall as far as standard of living, we will invariably set a budget, and most likely overspend that budget. The causes of problems that exist with standard of living are things such as:
- Entitlement –Thinking we “deserve” something even though the means are nonexistent.
- Pressure – “Pressure bursts pipes” and apparently blows money. Falling under spousal demands (see entitlement) especially when it only seems unrealistic to one and not the other. Letting peer expectations and typical spending habits dictate what we do, which only results in the fooling of ourselves (not necessarily others) with perceptions that we are what we are not.
- Affirmation – a desire to be recognized or to be associated with a particular crowd, and usually the reason behind the initial pressure.
Resist Forward Spending
This is probably the most dangerous as it weaves a subtle trap that goes unnoticed till it becomes exorbitant. This is money that you don’t have now, but you “know” is going to be available later. To forward-spend you need credit, which means, credit card usage. If forward spending is a must, the best card for this is one in which you absolutely have to pay the whole balance within a thirty day cycle (or by the end of the month) – for example, some American Express cards.
Have and Control a Budget
With having a budget, if we can’t determine and stay within the bounds of what our standard of living should be, every time we overspend our budget, it would seem as though the budget is ineffective and our efforts unrealistic. When coming up with a budget, it is also important to realize that daily use of credit cards is not part of the equation. Credit cards have a way of making money seem inconsequential. For example, it is easier to swipe one thousand dollars on a credit card for a purchase compared to withdrawing the money, and making the payment with cash. In the case of the latter, the thought process behind determining the relevance of the purchase is more involved.
Eliminate Debt
The prime effective step in debt elimination is resolution to not tack on additional debt. If credit cards (or loans) must be acquired, then they must. However, accumulation of additional debt is counterproductive to debt elimination regardless of how the reason behind it, or how it is viewed. Monies for reducing debt should be built into the budget, and strictly applied to debts.
To aid in eliminating debts, a number of sacrifices may have to be made that could be very inconvenient from a lavishness perspective. This includes, but is not limited to the need to downgrade or sell assets that are not necessary for basic survival. The cash obtained from this can be applied to debts. Getting additional income is also another option. At the end of the day, the crucial thing necessary to successfully reduce debt is a firm resolve.
Save Often
We have heard this enough times to know what it means. It is important when saving that we don’t deep into the savings unless it is absolutely necessary. Sometimes we save to be able to answer “yes” to that question, but end up turning the savings account to a not-so-frequent checking account. Understanding what absolutely necessary means is usually the hardest part, and boils down to being responsible about it.
Be a Smart Investor
Once savings is under way, the next step would be to look for areas to invest some of the money saved. The usual suspects are stocks or mutual funds through an individual account. Other account types are company employee 401(k) accounts, IRA/Roth IRAs. Investing is a good idea as the rate of return is typically higher than with savings account in the long run. When ready to invest consult a financial adviser, or get up to speed by going to accurate and informative sites on the internet such as Motley Fool (fool.com). Good online brokers are TDAmeritrade.com and eTrade.com.
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