Basic Finances: Stepping to Success

What happens when you can't keep up with your payments and you struggle to make ends meet? It is time to reevaluate your financial position and get moving in a positive direction.

You have a mortgage, utilities, car payments, student loans and one heck of a headache. Running up your credit cards seems to be the only way you can make it paycheck to paycheck. Where do you go? What can you do? It is as easy as five simple steps.

Step One: Do something NOW. The longer you wait, the larger the repercussions will be with the ships sinks. You can only make minimum payments for so long. At some point you will not be able to continue the cycle of debt avoidance.

Step Two: Prioritize your spending. Using a simple spreadsheet created in excel or a sheet of paper, write down the bills and expenses that are absolutely necessary. Be honest with yourself. The 200 dollar cable bill is not a necessity.

Step Three: Cut back slowly. Nothing will set you up for failure more than anything else. By immediately turning off the TV, locking yourself in the kitchen to avoid going out, and never watching a movie again, you will drive yourself and your family crazy. Take it slow and gradually reduce unneeded spending.

Step Four: After cutting back, set up goals prioritizing your debt payoff schedule. Use any excess money you have to begin building your emergency fund. Grow your assets, diversify your investments and continue looking for additional ways to introduce frugality into your life.

Step Five: Educate yourself in all aspects of your financial life. Learn about managing your income, expenses, investments, insurance, debts, and goals. Knowledge is power. It is the key to making the changes in your financial lifestyle long lasting and productive.

At the very top level, these are the basic means from taking complete financial chaos to simplistic financial order. However, steps 2-5 can be fledged out into a several substeps. I will be taking a look at the break down of these more detail steps in the next couple of weeks.

Securing financial independence and security is a slow and tedious process. No one can guarantee success, but with a little effort and some hard work, you can and will reach succeed.

The National Debt - Is America Overspending?

Our country has a growing problem. It goes against every bit of financial common sense we have, yet we continue on the path towards a dangerous future. This is by no means a political discussion for the support of one candidate or another in the presidential race. It is simply some observations regarding our countries dire situation.

The national debt. It is growing at an unprecedented rate and seemingly unnoticed by Congress and our executive leadership. At some point we as a country will need to pay for this debt. When will that happen? No one can tell for sure, but here are some things to think about:

• The national debt clock has broken. Designed and put into service in 1989 by Seymour Durst, the national debt clock has run out of digits for the rapidly increasing debt. Seymour's son (current owner of the clock) is planning on a new clock to track up to a QUADRILLION dollars. Sounds like something out of an Austin Powers movie.


• The federal government spent 451 billion dollars on interest expense related to our national debt. An absolutely astounding number. Broken out over the number of people in this country (assume 304 million) that is 1,484 dollars a person. Why is this not a bigger deal?


• Based on inflation (see chart below, from the US National Debt Clock FAQ by Ed Hall) our national debt has exploded in the last 30 years. Fundamentally, our government has gone from balanced budget fiscal policy to one disregarding financial responsibility. The exploding debt took only 13 months to go from 9 trillion to 10 trillion. Previously it took 22 1/2 months to get from 8 to 9 trillion.

So what does this mean for us? At some point their will be a day of reckoning where we as Americans will have to fund and respond to our out of control debt situation. Our government, our people and our tax dollars need to follow basic financial guidelines and set ourselves up for success. We cannot continue to mortgage our future. Currently, each individual theoretically owes about 34,000 dollars of our national debt! Can you stroke a check for your portion? For a family of four, the 136,000 dollar debt is SIX times the 2008 poverty level.

As you can clearly see, fundamental fiscal policy must change in this country. It will take more than a change leadership in Washington to solve this. We as a country must change, reversing negative saving rate and reining in our attachment to debt.

Where does the money go?

At some point during all of our lives we wonder where our money is going. Even more frequent is when our spouse might ask, "how much was that video game" or "why are you mad? it was only $260 for a pair of shoes and they were 30% off!" Such is being married and not knowing where the money is going.

I like most other middle class people am struggling. In today's world with expenses rising and income never seeming to catch up I worry about paying the mortgage, credit card bills and even the cable guy. However, like everything, knowledge is power.

But where do you get this knowledge? How do you find ways to track your spending and where your income is going? There are a multitude of online budget websites and tracking programs that can overwhelm and leave us with little to no motivation to answer our questions. In the great expanse of tools, two that I have begun to use and enjoy are as follows:

• Mint.com - Mint.com is an amazing online resource of visual aides and tools. Mint categorizes your expenses for you and tracks your spending. By inputing your login information for your various accounts, it will update periodically and everytime you login to provide you with a spending history. I personally use Mint.com and have found it to be extremely useful.


• PearBudget.com - PearBudget is a downloadable spreadsheet that tracks your spending. Simply set up your monthly expenses and your proposed budget amount and PearBudget will populate monthly schedules for you to track your spending. Entering your receipts at the end of the week will update the spreadsheet to reflect how your are aligning with your budget and where you need to address your spending. Like Mint.com, I use this spreadsheet as well. As an accountant, spreadsheets are a personal passion so using this is fun for me.

After tracking your spending, get to know where you overspend. Mint.com has a wonderful tool that allows you to compare to other people in your city or state to see how you stack up. Once you have an idea for how much you want to spend, stick to your goals and continue to track your spending.

Knowing where you are spending money and what spending habits you have is only half the battle! Adjusting those habits requires time and effort.