Any financial planning process begins with a change in financial behavior and expectations. The degree of change varies based on financial priorities, but in the end, it’s about adopting new habits and abandoning others. Here are some things to consider.
Refinance if you can
Mortgage rates are still at historically low levels. You’ll need at least 10 percent equity (20% of equity will save you on mortgage insurance costs) in your home and a credit score exceeding 720 to qualify for the best rates. Start negotiating with your current lender first and see how well you do. But be careful about using home equity to cover credit card debt unless you can slash or eliminate future credit card use.
Track your spending for a week
Write down every dollar you spend in the average week (and cut off credit card use during that week). At the end of that week, start taking out non-essential items. Start with coffee and restaurant or carryout meals and work backward from there.
Make a budget
Once you know how your income covers your essential expenses and a few inexpensive treats that should stay in, build a budget that includes specific amounts to allocate toward debt. Keep a running total of your spending going forward, and revisit how that budget is working on a monthly basis until you start to see some positive results.
Reset your entertainment expectations
Enjoy social time with friends. Entertain economically at each others’ homes. Eat out sparingly and rent a movie instead of going out to the theater. Check entertainment listings for free events that interest you. Review subscription to publications and the level of your cable or satellite TV packages. Use libraries, parks and free public recreation opportunities. Play with the kids or grandkids.
Take over home and auto maintenance yourself
Learn as much as you can about home and routine auto maintenance chores and consider doing those jobs you that have confidence you can safely accomplish. Estimate the cost of materials and the value your time before doing them yourself. Seek help from friends and family and offer mutual assistance for bigger jobs.
Set a new gift policy
Do all of your adult friends and family really need a present for birthdays and major holidays? Suggest a gift drawing, a budget limit, a moratorium on gifts, or some other alternative where you trade off gifts for quality time.
Switch to Debit Cards
Bank debit cards are typically welcome at most stores where credit cards are accepted. Expenditures come directly out of you checking, savings, or money market account and is safer for you than caring large sums of cash and is preferred by merchants to checks. If you don’t have one, ask your bank to replace your traditional ATM card. Don’t forget to check for fees and penalties, which vary greatly from bank to bank. Some well known mega banks have been loading up on such fees. Many community banks offer more affordable options. Retain at least one credit card for essential major purchases that cannot be paid for at once, but again shop for the best deal for your needs.
Revamp your shopping list
Grocery, pharmacy, and common “notions” shopping take a big chunk out of your weekly budget. Substitute generics and house brands where practical, Forego packaged meals in favor of cooking from scratch with often cheaper fresh ingredients. Buy in bulk where possible and practical. Cut luxury items without totally denying yourself some pleasures. Check sales, but be careful you don’t use more money for fuel and loose more of your valuable time than you save by running around to multiple stores.
Talk to your family about spending
This is a conversation you need to have not only with your mate, but with your children. Children and teens can handle a lot when they are given the facts without instilling unnecessary fear and anxiety. Setting money priorities is part of growing up and an important life lesson.
Buy used
If you need clothing, a car or a new watch to replace the old one that’s past fixing, it might be worthwhile to buy second-hand. You can often find high quality items on the internet on places like craigslist and e-bay. Plenty of people have unloaded items in relatively good shape to bring in cash during the recent downturn. But always take care that you do not buy a pig in a poke and check out options to return items that do not meet your expectations. Thrift stores can be an excellent source for good used clothing and furniture. Consignment shops where you can obtain fashionable, even designer, gently used clothing suitable for business wear and dress-up, are thriving in this economy. If anyone asks, don’t call it used; call it “vintage.”
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This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by FPA member Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.
