If you’re in debt, you’re not alone. However, the New Year is one more chance to change your spending habits. There are encouraging signs that many Americans are starting to realize the urgent need to start saving for tomorrow. People are beginning to realize that they can’t keep spending more than they earn. But the key for today is to get out of debt.
Follow these steps to reach your goal:
1. Understand that credit is not more money. If your credit card has a $5,000 limit, you don’t have $5,000. You only have the right to rent $5,000 and you may have to pay a very high price for that right.
2. If you’re going to use a credit card, make sure it doesn’t have a high interest rate. Aspire and other credit unions tend to have better rates than other lenders.
3. Stop using credit. People find it easier to spend when they pull that plastic out of their wallet, but in the long run, it’s cheaper to pay cash. If you crave the convenience, try a debit card. It offers all the immediate access of a credit card along with immediate reduction of your checking account.
4. Sit down and make a list of your debts. Include how much you owe and what rate of interest you are being charged on each debt. Pay off the one with the most expensive interest rate first, not necessarily the largest amount owed. Update the list each month and total the amount owed to make sure that it is getting smaller each month.
5. Establish a savings plan. You should have both short-term and long-term savings goals. The short term goals are for things like insurance, auto repairs, holiday gifts, and other regular, predictable costs. The long-term goals are for house down payments, kids’ college, and retirement. Keep the two funds separate and set a specific amount to go into each fund out of every paycheck.
6. Save first. Don’t try to save out of whatever money is left over after other bills have been paid. There won’t be any. You have probably already been living beyond your means but credit has disguised it. Making your savings payments first forces you to see what you really have to live on.
7. Carry a little notebook around with you for one month and write down everything you spend. Everything—from the home mortgage payment to the pack of gum—must be written down. Small things can add up. Even a low-cost $5 lunch each working day will cost $1,250 over a year. You can’t start trimming costs until you actually know what you’re spending.
8. Based on your savings goals and the spending patterns you’ve tracked, establish a spending plan. Then follow it. The plan doesn’t have to be brilliant; it just has to be followed.
9. Involve your family in your budget planning. A successful budget isn’t imposed on family members; it emerges from consensus. If everyone in the family doesn’t feel their interests have been considered, they won’t be motivated to make the spending plan a success.
10. Compare fees and services at various financial institutions. Credit unions typically offer lower fees on everything from checking accounts to credit cards. Credit unions also generally offer higher interest rates on savings accounts.