Gaining control of your personal finances is always among the top vote getters among New Years resolutions. It's also among the most challenging.
By Kevin Fox
Gaining control of your personal finances is always among the top vote getters among New Years resolutions. It’s also among the most challenging. This is also the time of year when we begin getting our W-2s and see the total income for the year. The question always arises "What do I have to show for that income? or "Am I better off financially than I was a year ago?" These are just some of the questions we pose to ourselves with the beginning of a new year. To assist you in taking control of your finances, we contacted Debbie Whiston.
Debbie Whiston, Clark County Program Director with the University of Missouri Outreach has several ideas on how we can best gain control of our finances. Debbie puts on numerous financial seminars and clinics throughout the year for various groups such as programming for low income families to middle class people who want to know about investments, credit cards, and identity theft. She also works with those who are looking at their retirement plan.
According to Whiston, "The first step in gaining control of your finances is to get a firm grip on where your money is going. You need to have a spending plan. I do not like to use the term "Budget" because it sounds like diet and that means deprive yourself. We all know how much money we have coming in, but we need to take a serious look at our expenses. And most people do not have a good plan for spending their money. For example when we fuel our vehicle, which is something which we need to do, we also might run in a grab a candy bar and a soda or a pack of cigarettes and that’s a spending habit which quickly adds up. Transportation is a major expense, and not only purchasing a vehicle but it’s upkeep and insurance and the increase price of fuel has cut into all other areas of our lives. One way to reduce that cost is not to make unnecessary trips. If we’re in town and already out, we should stop and make our needed purchases then. Don’t go home and then make a return trip to town. Think about and plan on reducing fuel costs.
But we all have these expenditures which we do not keep track of, because these are things which have a higher priority for us. For example, hunting and the out of doors may mean more to you, so you do not think about the things you purchase in the area that you value. For the next person it may be nice clothes or having a nice vehicle. But these are the areas where our money goes without much thought. People know exactly whether or not they have financial problems but they simply do not set a plan in motion to either look at where their money is going or set a goal for regaining control. That spending plan will be an individual and what works for you may not work for a friend or co-worker. But it all begins with keeping track of where you spend your money and what you spend it on. There are all kinds of charts, which you can get, but just writing down purchases in a notebook will amaze you. Most of us already realize what our major monthly expenses are, such as house payments or car payments, but it’s those small things that add up. We call it drifting, just like when your driving a car. You sort of drive down the road and not pay any attention until the front tire goes on the rough edge of the road and it snaps you out of it. We spend much the same way. We start by going to a store and looking for one thing and we slowly move away from our first and important purchase and buy things that we really do not need. And over time those things add up into large sums of money.
As far as beginning a savings program, keep it realistic and your goals realistic. To put it very simply, saving is the act of not spending. It is when you set aside some of your income rather than spending it. Don’t say that you have to save a hundred dollars in order to have a successful savings program. Instead, save a dollar or even fifty cents a day out of your wallet or pocket and put it in a jar. Then once that saving program has began, set long-range goals, such as where you want to be a year from now. But you want to make saving money such a habit, that when you don’t save you feel bad about not saving. I talk to a great many people who say that when they retire they want to travel or go see their grandkids. However, they have never put the pencil to the paper and seen what it’s going to take to be able to do that. And when it comes to retirement you cannot depend on the government, that money is just going to be for the basics or an existence, not for extra things like travel. Talk to anybody on Social Security and they will tell you the same thing. But savings can be just a plan to purchase something rather than buy it on time. Savings can also be set up as an emergency fund should something happen that will affect your income, such as getting hurt or having some medical emergency. What often happens when people fail to have an emergency savings fund is that the unforeseen occurs and they feel forced to turn to a predatory lender, which have a huge percentage rate. People get caught up in that because they feel they have no where else to turn. Once you get into that, then you are continually behind. Anytime you borrow money, you are borrowing against your future.
Many people say that there simply isn’t any place to cut expenses in order to begin saving, but there usually are such places if they look closely enough. For example, that .50 cents a day I mentioned amounts to $15.00 a month. If we cut soda pop down by one liter a week, we save $6.00. By bringing lunch to work we can save an estimated $3.00 a day or $60.00 a month. You can also eat out two fewer times a month for a savings of $30.00 a month. If you go to the library and check out a book over buying a book the savings can be as much as $15.00 a month. One of the easiest ways to cut expenses is to keep your checkbook balanced and keep your account from overdraft where each check that is written without sufficient funds can cost as much as $25.00 Another way to assist you in beginning a savings program is to have your financial institution to automatically deduct a certain amount from your checking and place it in a savings account. It is very hard to take out a certain amount each week, but if it’s done automatically, chances are you will never miss it.
It’s also vital that if you want to regain control of your finances that you do a net worth statement. This will show them what their assets are and what their liabilities are. And your assets minus your liabilities will show you what your net worth is. People should do this every year and it will show them if they’re getting ahead or slipping further back. This is a benchmark to say where we are right now and if our liabilities are greater than our income, then there will come a day of reckoning or some point when something is going to happen where you might have to file for bankruptcy. And it’s not as easy to file for bankruptcy as it once was. If you go through bankruptcy now, it stays on your record for some time and you have to reestablish your credit. There are just a tremendous amount of difficulties associated with bankruptcy."
Whiston added that among the first steps in taking control is to pay off those debts with high costs associated with it with double -digit interest rates. For example, if you have a $3,000 credit card balance at 19% interest, and you pay the required minimum balance of 2% of the balance or $15, whichever is greater, it will take 39 years to pay off the loan. And you will pay more than $10,000 in interest charges. Many people take until late June or July to pay off the purchases of Christmas. When it comes to credit cards, Whiston stated that it is imperative to pay down those debts which have high interest rates and you have to pay more than the minimum otherwise you will never be free from that debt. She added that it is the same with rent to own appliances. The homeowner may start out with a $400 television with payments as low as $14 a week, but by the time you have paid off the loan they will have paid over $1,000.
However, when seeking how to make changes in your finances for the better, consider contacting a professional. The University of Missouri has many programs that can be of assistance. You should also feel free to contact any one of Clark County’s financial institutions for advice and assistance in creating a road to financial security.