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Get a grip on spending
Dear Dollar Diva,
How can I get better control over my finances?
The Diva has three suggestions for you:
Credit cards
Cut them up, and make a commitment to pay off the
current balances during the next 12 months. Nevermind the mileage,
free gas, and 10 percent-off purchases. If you are having a problem
getting your financial life in order, the credit cards have got
to go.
You can keep one for convenience or an emergency,
but the balance must be paid off each month. Carrying balances on
credit cards is a fool's game -- the interest you have to pay is
too expensive, and that money can be better spent on just about
anything. For starters, set up a savings account for emergencies.
Wealth accumulation vs. lifestyle
Choose wealth accumulation over lifestyle whenever
you make a financial decision.
Wealth accumulation choices:
- Buy a modest home, and plan to pay the mortgage
off before the 30-year term.
- Buy an affordable car, and keep it when the
car payments are done.
- Fully fund your 401(k) plan each year.
- Make a Roth IRA contribution if you're eligible.
Lifestyle choices:
- Buy a big home, and keep sucking the equity
out of it to finance current lifestyle.
- Lease an expensive car, and own nothing when
the lease term expires.
- Spend your money on a lavish lifestyle instead
of saving it for emergencies and long-term goals, including retirement.
The financial component
The financial component of your complex life is important,
as is the work component, family component, recreation component,
and everything else. And just like every other component, you need
to spend time on it to make it work.
Spend whatever time it takes each month to have the
following financial information at your fingertips:
- How much money comes in each month
- How much goes out each month -- and where
it goes
- What your net worth is -- what you own minus
what you owe
Happiness is having more coming in than going out;
misery is having more going out than coming in. Your goal is to
be happy. Take the time to study your spending, and make the necessary
adjustments to make sure more is coming in than going out.
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-- Posted: Jan. 7, 2000
DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting,
from the Kellogg Graduate School at Northwestern University in Evanston,
Ill. Rosen has more than 15 years of experience in the financial arena, serving
in Illinois and Florida as a certified public accountant, financial consultant,
expert witness and educator. She is owner of Dorothy Rosen, CPA, a public
accounting firm that serves individuals and small businesses.
