By Steve Freidell
Land Line contributor
Can you imagine having no debt? No monthly credit card bills? No car payments and – what many now call the ultimate status symbol – no mortgage payment?
Well, that dream sounds pretty far off, but if you think about it, anything that you have ever accomplished in your life has taken a lot of time, right? Your education wasn’t completed in a few years, but rather took between 12 and 20 years to complete.
Like obtaining an education, elimination of debt takes time, planning, determination and willpower. Most of you can completely eliminate your debt in less than 10 years.
In this article, I am going to begin by showing you how to get started on developing your “Debt Elimination Program” by first understanding where your money goes. In future articles we will be more specific about additional debt-elimination ideas.
Our society has stressed for years that we must be a slave to our materialistic wishes by borrowing money to purchase everything our heart desires. Most people borrow money to buy homes and cars – but many don’t stop there. They borrow money to buy that big-screen TV, new furniture, vacations, right down to everyday shopping trips at Wal-Mart.
Before they stop borrowing, they have so much debt that their income can’t support it anymore. Obviously, the only way to eliminate debt is to spend less and increase your income. You must stop thinking that the only way to get what you want today is to borrow and buy it tomorrow. To get started you must have a plan.
The best way to get started toward creating a plan is knowing what you are spending your money on, and having a workable budget. How do you do that? It’s easy.
If you have a computer at home, purchase a program called Quicken or one of its competitors, Microsoft Money. Either one will do a fine job, but I prefer Quicken as it’s the easiest to use and will help even the most novice users, walking them through the process of setting up a financial plan.
If your bank offers online banking, sign up and have it send your transactions through Quicken or MS Money. In this way, you can download all of your transactions directly into your computer and won’t have to enter all of your checks, debit and/or credit card purchases manually. Also, make sure your bank is Quicken- or MS Money-compatible; you may have to sign up at a different bank to gain this benefit.
These programs will then ask you to designate a category for each of your expenditures. You can select from a list of common expense and income categories or create your own. When this is completed (it takes very little effort to do this during the first part of the year), you will be able to build a budget directly from your monthly expenditures.
If you don’t have a computer, start by writing down every expenditure you make, whether by check, cash, debit or credit card. Categorize each expenditure by the reason it was made: mortgage payment, groceries, utility bills, dining out, entertainment, etc. Then add up your expenses in each category. Most people are amazed at what they spend their money on.
Next, complete a budget from the list of categorized expenditures, which is much easier with the Quicken program.
Once your budget has been completed by Quicken or manually, it’s time to involve the rest of the family in the process. Together you should discuss setting goals and determining what expenses are in the best interests of your family. “Your Debt Elimination Program” will fail if you don’t involve every member of the family who regularly spends money.
After the family has decided which expenditures are most important and what future expenditures may be necessary, you will have a workable budget. Now it’s time for you to use a little determination and willpower. Once you get started, hold weekly meetings with the family and review the expenditures against the budget.
Offer much more praise than criticism, and they will look forward to your meetings each week. Even if the family went over budget, look for ways to praise various members of the family for their participation and adherence to the plan. Slowly you will see everyone becoming excited about saving money and reducing debt.
Next month we will discuss categorizing your debt. In the meantime, work on your budget and list of expenditures. LL
Steve Freidell has assisted clients in their cash management, trading, and portfolio management of fixed income securities since 1975. Steve started his career at the First National Bank of Kansas City and later was first vice president with Commerce Bank where he served his clients for 25 years. He joined the DeWaay organization in 2006, the financial management company utilized by OOIDA.