Money Management - The Debt Dilemma
Long-term money management
The key to having a worry-free financial life is learning the basics of long-term money management. This needn't be a scary prospect. A few simple changes to your lifestyle will make a big difference to your long-term financial freedom.
Many people just hate the prospect of putting together a personal budget but this is the biggest thing you can do to get a handle on your finances. The initial budget set-up is the most time-consuming task, maintaining it is simple. Remember, your budget is there to make you conscious of where you money is going, not force you to deprive yourself of life's little luxuries.
Your budget needs to include all your income: pay after tax, any income from side jobs, child support, alimony etc. If you've got any income that comes in annually just divide it by 12. Then you need to track all your expenses. Get into the habit of asking for and keeping receipts for everything you buy: groceries, bus fares, gas, cinema tickets, clothes; and don't forget to add your monthly expenses such as rent or mortgage repayments, and utility bills. Don't leave anything out.
Calculate if your income can cover your expenses and if not take a close look and see where you could make savings. Look at our page on personal debt management programs for tips on reducing day-to-day spending; for bigger gaps in income and expenditure you may need to consider getting a smaller car or house.
Even if your income does cover all your expenses you might want to consider putting money away for a weekend break or for an emergency stash to cover future expenses such as your car or washing machine breaking down. Having the cash on hand to pay for such unexpected expenses will prevent you from falling into debt again.
Want versus need
Think about the purchases you make. Do you really need them or would you just like to have them? Making do without that new pair of heels for a month or two might just help you pay off a previous debt and get your spending back on track. Don't give in to temptation or impulse buying - walk away and come back a week later and see if you really need the item. To make long-term money management a success you've got to control your spending. This doesn't have to mean depriving yourself but be realistic: how many outfits do you already have in your closet that you never use? And how many extra tools are sitting in the garage gathering dust? Just make sure that what you buy you actually need.
When you decide to make a purchase, shop around for the best deal. Check your local retailers, mail-order catalogues and the Internet before making a decision. You'll be surprised at what you can save. Do the same when it comes to financial products, make sure you get the best deal on your car loan or mortgage and don't just go for the convenient option.
Credit cards are prime areas for making savings. See our page on how to eliminate credit card debt for tips on making long-term savings in this area. Getting rid of your credit card and saving for an item before you buy it beats all of these however. You'll really think about how much you need something and you'll avoid all that interest by paying in cash.
Read the small print
Be thorough when you need to sign any document, particularly anything to do with your finances. Read through all the small print and make sure there are no unpleasant surprises. Look out for fantastic introductory offers that change to money guzzling nightmares, and high penalty fees for early repayment or closure of an account. And whatever you do, don't fall for any financial product or money-making scheme that seems too good to be true - it probably is.
Paying your bills on time will make a big difference to your money management plan: you'll avoid late payment fees, high interest charges and unsettling phone calls from creditors. Apply the same logic to your buying patterns and you could save substantial amounts by planning ahead and buying food in bulk or keeping distant birthdays in mind when you're checking out off-season sales.
Think about it
Just thinking about what you do each day and how you live your life could make a vast improvement to your money management. Simple lifestyle changes can make all the difference: changing to a lower priced food store, giving up smoking, cutting out convenience foods or washing your own car. Cancel the direct debit to the gym you never use, take self-catering holidays outside peak season, and switch your mortgage provider: you could save substantial monthly outgoings. A little time and some planning will make all the difference.