The Dollar Stretcher

Hope for a Spendaholic

2009-11-16T16:02:00Z

I have been married 40 years, I am 59 and am a spendaholic. I have been following Dave Ramsey's plan and trying to get my credit cards paid off. We have no money and no retirement. Is there any hope for us?

Yes, there is hope for B. It might take awhile and may not be easy. But just because she didn't overcome her spendaholic tendencies in the past doesn't mean that it cannot be done.

Let's tackle the problem on two levels. First, the things that she can do to get the problem under control today. Second, the longer-range things that she can do to uproot the source of the problem.

B. says that she's using the Dave Ramsey plan for paying off her credit cards. Good for her. Dave's plan is very workable. It's one of two common plans for paying off debt that are very similar.

Both pay the minimum on all accounts. One pays off the smallest balance first and pays accounts off from smallest to largest. The idea is that you get re-motivated every time you close an account.

The other, ranks them in terms of interest rates. They pay off the highest rate first and works down from the highest interest rate to the lowest. This is the fastest way to pay off a group of accounts. But, you'll need to keep yourself motivated.

Depending on how much debt she has, it may take B. awhile to pay down all the accounts. She'll need some patience and determination. It took awhile to accumulate the debt. It will take awhile to pay it off.

At the same time that B. is reducing the debt level, it's important that she stop her spending. She can't get out of debt if she keeps spending. So that has to stop now.

Based on past experience, her willpower and good intentions cannot be trusted 100% of the time. So until B. can control her spending urges, she'll need to use some physical means to assist her will power.

That means recongizing where she's vulnerable. Is she more likely to be spending cash? Using credit cards? Ordering over the internet? Or by phone?

Whatever the vulnerability, B. will need to devise a plan to protect her when willpower is not enough. That may mean limiting the amount of cash she carries. Or freezing her credit cards in a block of ice so she has to wait before charging. Blocking certain internet sites or TV shopping channels.

Once B. has made it hard to succumb to her spendaholic urges, then it's time to try to find what's causing her to spend. I'm no psychologist. But I have worked with many people and their finances. Money is generally not the root of the problem. It's most likely to be a symptom of something else. Often people spend in an attempt to make some emotional hurt feel better.

B. will want to look for a pattern to her spending. Is there a particular emotion that she's feeling when the urge to shop is strong? Knowing what emotion goes along with her spending will allow B. to watch for the emotion and when it surfaces she can guard against spending. A little like an early warning system.

She might also want to seek outside help. Many places have Debtor's Anonymous meetings.

Or B. could find professional psychological help. Either to help her find the source of her spending or to deal with the source once it's found.

There's no reason for B. to give up hope. She can make it almost physically impossible to spend. That alone will solve most of the problem. And if B. is able to identify the emotional root and deal with those issues then she can be free of her spendaholism forever!

Small Steps = Big Goals

2009-11-13T16:31:00Z

Part of accomplishing any goal is the daily discipline to take the next small step. So don't let yourself be talked out of doing the small things. Successfully doing the small things will guarantee the success of the big things.

Finding the Positive

2009-11-04T19:10:00Z

Trying to change our behavior is often a challenge. Especially if it's a long-standing habit that's been repeated thousands and thousands of times. But, just because it's a challenge, doesn't mean that it can't be done. In fact, when you stop to think about it, even behaviors that you've had for years can be changed in a month or so. That's pretty remarkable.

How many people do you know who always seem to find the negative? Whether it's the dessert at a restraurant, the guest list at a party or the present they received from Aunt Mary, they'll always find something to be unhappy about. No matter how good everything else was. I admit that I find it tiring to be around people like that. It's almost as if the negativity has completely drained their life force and is now going after mine!

One good thing does come out of hanging around them. It's a great reminder for me to check my own attitude. Have I become negative? Do I always look what's wrong? Are my words often critical? If so, it's time to change my perspective. Because that negativity will quickly begin to sap my energy and color everything I see. Noticing what's happening gives me an opportunity to get back on track. And, hopefully I'll be smart enough to take that opportunity!

ps: I know that it's harder to see the good if you've just lost your job or there is sickness in your family. There's no denying that's true. But, it's equally true that those are the exact times that it is even more important to find some positive things to think about. Being able to see the positive is great medicine. And medicine is most needed when times are truly tough not when the going is easy.

This post originally appeared in Financial Independence. FI is a daily message designed to help people take control of their financial lives. To find out more check out the Financial Independence page.

Red Minivans

2009-11-03T19:12:00Z

Finding things to be thankful for is a bit of an art. And, unfortunately, an art that many of us are unfamiliar with. Have you ever noticed how when you buy a new, red minivan that you'll notice all the red minivans on the road? The reason is that we're looking for them. There aren't any more around than yesterday. You're just of a mindset to notice them.

I believe that the same thing is true of things to be thankful for. Our life is probably no better or worse than the day before. But if we're looking to find good things, then we're more likely to see them. So instead of looking for red minivans, how about looking for the good things that will happen in your day today?

Positive vs Negative

2009-11-02T17:16:00Z

Today we begin a new goal for the month of November - working on being thankful. We selected that goal for a reason. When we're looking for a reason to be thankful we're looking for things that are good. We're focused on the positive. Not the negative. So no matter how you feel right now, spend some time today looking for something that you're glad exists in your world. You'll be a happier person for it.

Finding something to be thankful for tends to focus our mind on the positive. Why is that good? Because the mind cannot hold two opposing thoughts at the same time. One after another, yes. But at the same time, no. So if you're positively thankful, you cannot be negative for that moment. And, sometimes, especially when we're feeling low, to escape from the negativity even for a few moments is a real relief.

What methods do you use to find items to be thankful for? Why not share them with us?

Looking at Both Sides

2009-10-29T18:44:00Z

I've noticed that it's very easy for me to see a situation and quickly come up with all the things that can go wrong. In fact, I've probably even thought that it was a good thing that I did so. I've always felt that if you know the worst that can come out of an event, and you're willing to accept that, then you can go in without fear.

But, it occurs to me that I should also be considering all the things that could go right. Because if I don't consider them I have a one-sided view that's really more of a distortion than a realistic appraisal. And, making decisions based on a distorted view isn't the best way to come to a good conclusion.

Keep on Stretching those Dollars!

Gary

A Body In Motion...

2009-10-27T18:07:00Z

I don't recall it's name, but I believe that there's a law of physics that says that a body in motion will continue to move in the same direction unless some other force influences it. For instance, if you roll a ball across the floor it will continue in the same direction unless something (say a wrinkle in the throw rug) causes it to change direction.

Sometimes I think that our lives operate much the same way. We've been buying and using the same product for years. Our ball just keeps rolling in the same direction. But it probably is a good idea to change course every so often. To try something new to see whether it fits our lifestyle. So I'd ask you a question. What are you trying that's different this week?

My $4590 U.S. Debt

2009-10-16T13:49:00Z

Wow! That's probably the only thing that you can say about it. We're getting final estimates on the federal government's income and expenses for the fiscal year that ended Sept. 30th. The experts say that the federal government spent $1.4 trillion more than they took in (source Congressional Budget Office as reported in The Salt Lake Tribune). That's a number that's really hard to get my head around. So I wrote it out: $1,400,000,000,000. (boy that's a lot of zeroes!)

But even writing it out, it's hard to put into any kind of perspective. It occurred to me that maybe I could grasp it if I knew how much of it I was responsible for. So I googled to see how many of us live in these United States. As reported by U.S. News there are 305 million of us (to be precise 305,529,237).

Dividing the $1.4 trillion debt by 305 million people means that during the last 12 months the federal government committed to $4,590 in indebtedness on my behalf. Wow times 2!

I know that it was an unusual year with all the bailouts and stimulus. But, speaking honestly, I wish that they wouldn't commit me and my kids to each repaying $4,590 plus interest in the future.

Then I thought that maybe they wouldn't repay it. After all, they have done much to reduce the federal debt in quite a few years. But even if they don't plan on cutting expenses or raising taxes to repay the debt, the interest payment is $229 a year (assuming 5% interest, which is probably a low estimate). In reality I'll probably have to pay $300 or so every year forever to cover the interest on this year's federal debt.

So as someone who takes debt very seriously I'm having a bit of trouble accepting this news. Given the economy it's been hard not taking on personal debt. But, like many of you, I'm working awfully hard to keep my spending in line with my income.

So if anyone in Washington is listening...please don't take on any more debt in my name. I don't think that I can afford it.

What You Should Do Now

2009-10-13T14:55:00Z

“Never make predictions, especially about the future.” - Casey Stengel

For years Casey Stengel managed in baseball's big leagues. Some of his quotes are legendary. But, given our current economy, I'd have to take exception to his advice. At least as it applies to our personal finances.

Let's look at some current information. Unemployment is at 9.8%. Nearly double what it was at the beginning of 2009. Hiring remains anemic.

The Congressional Budget Office (CBO) estimates that the fiscal year 2009 U.S. deficit will be $1.4 trillion. That's just under 10% of gross domestic product. Or to put it into perspective, during the last year the government borrowed the equivalent of 10% of every good and service the whole country produced.

There were over 1 million bankruptcies through September, 2009 according to U.S. Bankrtupcy Court. At that pace we'll see 1.4 million this year.

Forecasts for the economic future vary widely. Despite old Casey's advice you can find reputable economists who are willing to predict both recovery and a more serious recession.

So, while there is much uncertainty, there are still some things that you can reasonably predict about your personal finances.

First, you can expect some inflation. Over the long term there's only two things that can be done with the deficit. Congress can adjust future budgets to repay it quickly. Or they can devalue the dollar to pay it back with cheaper dollars later. Based on past experience, I'd say that they won't vote to repay it soon. So we better be prepared for some inflation (i.e. devaluation of the dollar).

What will that inflation mean to you? It will mean that it will take more dollars to buy things. Bread that cost $2 today will cost $3 tomorrow. If your income does not keep pace with inflation you'll suffer. Those on fixed incomes will be hit hardest.

Inflation can also devalue your savings. Whatever amount you planned for an emergency fund, college savings or your retirement won't be enough. You'll need to adjust your savings goals upward.

You'll also want to change the way you invest your savings. Reduce the amount that you have in CD's and money funds. Look to increase the portion in assets with prices that can increase. For instance natural resources (oil, gold, etc.) and housing.

Look for ways to increase your income. That may mean creating a second income source. It will be hard for many employers to raise your wages to keep up with inflation. Your pay could lag behind increasing prices.

Expect interest rates to increase. The government is borrowing more than ever before. You'll be competing with them for loans.

That means that you should pay off any debt where rates change with the market. A homeowner's line of credit is a great example. As rates go up, so will the cost of your HELOC.

Expect credit card rates to rise. First, because of generally higher interest rates.

Secondly, because the credit card reform bill of 2009 is forcing issuers to try to make more money from people who pay their bills on time. So instead of clobbering those who fall behind, card issuers will expect everyone to pay a little higher interest.

They'll also increase fees and reduce rewards. Much of that has already started. A good response is to slowly cancel cards you don't use. Especially recently opened accounts. Do this cautiously. Closing too many accounts too quicky could reduce your credit score.

If you have any other variable short-term debt pay it off as quickly as possible. If the rates are adjustable be prepared for them to go up.

Now might be a good time to consider refinancing your house. Locking in lower rates today is a good idea. Especially if you plan on being in your home for more than a couple of years. Bankrate.com has a good tool for comparing mortgage rates.

Think about what you would do if you lost your job. You may be fortunate and have a job that's secure. But most of us need to be prepared for either a pay cut, unpaid days off or even a layoff.

For instance, training for additional skills while you're still employed could be helpful. You'll find a whole list of things to do if your job is uncertain here .

Old Casey was right when he said it was hard to predict the future. No one knows for sure how long or rough this economic storm will be. But don't let that keep you from taking the appropriate steps now.

Gary Foreman is the editor of The Dollar Stretcher.com website and various enewsletters including Financial Independence. FI is a daily message designed to help people take control of their financial lives through achieving small daily goals. To find out more check out the Financial Independence page.

What Is Success?

2009-10-06T20:29:00Z

Did you ever stop to think that maybe success isn't a destination, but rather a mode of transportation? To me being successful isn't a matter of getting somewhere (the land of 'Success') and then living there the rest of your life. If that were true I would be un-successful until I reached that destination.

I'd much rather think of success as taking a trip down a good path. A path that's taking me where I want to go and providing me with a pleasant journey along the way. With this view I can be successful wherever I am, just as long as I'm headed in the right direction.

Don't know about you, but I like that concept much better.

Keep on Stretching those Dollars!

Gary