Ten things you can do to immediately smash debt and spending

All Things Financial

Vol. 15 No. 10
By Charles P. Jones, CFP®

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.

Before you take any of the following steps, it makes sense to talk to an expert who can help you see your whole financial picture. A CERTIFIED FINANCIAL PLANNER™ professional can examine all your sources of income and expenses and find the most efficient ways to cut expenses, pay off debt and boost the money you have for saving and investing.

In the meantime, here are some ideas:

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 the PMI insurance cost) in your home and a credit score exceeding 720 to qualify for the best rates, but start negotiating with your current lender first and see how well you do.

Track your spending for a week: Either on paper or on the computer, 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 marking out non-essential items just to see how much you could live without. Start with coffee and restaurant or carryout meals and work backward from there.

Make a budget: Once you’ve established how your income covers the essential expenses you must plan for, and a few inexpensive treats that should stay in, build a budget that includes specific amounts you can 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, and then you can review the performance of that budget a little less frequently.

Reset your entertainment expectations: Find ways to save money with friends – cook more meals at home or rent a movie instead of going out to see one. Also, get used to checking entertainment listings for free events that interest you.

If you can do it safely, take over home and auto maintenance yourself: The do-it-yourself movement is in a new phase with the economic downturn. For any home or auto maintenance chores you may have during the year, learn as much as you can about those tasks and estimate the cost of materials and your time before doing them yourself. Previous generations made do-it-yourself a necessity. See if that option is right for you and you might save considerable money doing it. Also, for bigger jobs, pair up with friends and family and you can help each other save money.

Set a new gift policy with your adult friends and family: Does everyone on your gift list over the age of 21 really need a present for birthdays and major holidays? Suggest to family and friends to have a gift drawing, a budget limit, a moratorium on gifts, or some other alternative where you trade off gifts for quality time. Even though the holidays are a few months away, it’s not too early to think about reining in the traditional holiday overspending.

Go debit: Debit cards wearing a bankcard logo are typically welcome at most stores where credit cards are accepted. This way, you pay cash without carrying cash. If you don’t have such a card, you can get one from your bank to replace your traditional ATM card, but remember to tell them to limit your buying power on the card to only what you have in your account. And use the overdraft protection to avoid fees.

Revamp your shopping list: Give this a shot: start a central weekly shopping list on a single piece of paper and add a dollar value for each. Write everything you think you need to buy on that single sheet, from groceries to clothes for the kids. That way, you’ll see all your proposed spending in front of you, and you can get a closer look at what your true priorities are. You’ll be surprised at all the “essentials” that are not really that essential that you can cross off before you spend.

Talk to your family about spending: When you’re talking to kids about budgeting and lowering your expenses, you have to walk a fine line between discipline and fear. But setting money priorities is part of growing up, and it’s essential to discuss and agree upon them as a family.

Buy used for yourself: Make someone else’s poor luck your good luck. 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. The best places to find these gems are on the internet on places like Craigslist. Plenty of people have unloaded items in relatively good shape to bring in cash during the recent downturn. You might do very well, and if anyone asks, don’t call it used; call it “vintage.”

October 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Charles P. “Chuck” Jones, CFP® , a local member of FPA.

Noteworthy

Financial planner Chuck Jones makes community involvement his creed:

SALEM, OR — Portland small business leader, Chuck Jones, has been named Oregon Small Business Champion of the Year for the second time. The honor was conferred upon him by the Oregon Leadership Council of the National Federation of Independent Business (NFIB). Each year, NFIB singles out a small business owner in all 50 states for special recognition and honors him or her with its prestigious Small Business Champion of the Year award. This is the fifth year the national group has recognized small business owners who go the extra mile for their fellow entrepreneurs.

Chuck’s many years of experience in building and managing his own businesses have benefited his community through his lengthy involvement in many civic and public institutions. It was a Jones-led effort that pushed through Small Business Bill of Rights through the Portland City Council.

For NFIB/Oregon, Chuck serves on its Leadership Council as member of its SAFE Trust political action committee, is a national Leadership Trust member, and testifies, writes letters, and speaks to the media on small business issues. Chuck also received the Eldon Shafer Champion of Small Business Award in 2006 and was included in Outstanding Young Men of America.

Source: www.NFIB.com

Kids These Days!

USDA RELEASES ANNUAL STUDY WHICH NOTES THAT CHILD BORN IN 2008 WILL COST $221,190 TO RAISE. WASHINGTON, Aug. 4, 2009 – The U.S. Department of Agriculture today released a new report*, Expenditures on Children by Families, finding that a middle-income family with a child born in 2008 can expect to spend about $221,190 ($291,570 when adjusted for inflation) for food, shelter, and other necessities to raise that child over the next seventeen years. For the year 2008, annual child-rearing expenses for a middle-income, two-parent family ranges from $11,610 to $13,480, depending on the age of the child.

The report by USDA’s Center for Nutrition Policy and Promotion notes that family income affects child rearing costs. A family earning less than $56,870 per year can expect to spend a total of $159,870 (in 2008 dollars) on a child from birth through high school. Similarly, parents with an income between $56,870 and $98,470 can expect to spend $221,190; and a family earning more than $98,470 can expect to spend $366,660. In 1960, a middle-income family could have expected to spend $25,230 ($183,509 in 2008 dollars) to raise a child through age seventeen.

Housing costs are the single largest expenditure on a child, averaging $69,660 or 32 percent of the total cost over seventeen years. Food and child care/education (for those with the expense) were the next two largest expenses, each averaging 16 percent of the total expenditure. The estimates do not include the cost of childbearing or the cost of a college education. In addition, some current-day costs, such as child care, were negligible in 1960.

The report notes geographic variations in the cost of raising a child, with expenses the highest for families living in the urban Northeast, followed by the urban West and urban Midwest. Families living in the urban South and rural areas have the lowest child-rearing expenses.

Release No. 0365.09

Source: www.cnpp.usda.com

We Made It…Now What?

How business owners need to plan for retirement is changing: Last year’s financial crisis exposed the weakness of the typical “sell the business” fallback idea for retirement funds:

  • Unpredictable selling price for the business
  • Challenge of finding a ready and qualified buyer
  • Uncertainty of a potential buyer being able to meet the financing obligations payable to current owner

If you own a business and have been impacted by last years’ crisis, let Chuck Jones, CFP® review your retirement plan with you and maybe show you some more options. There is no time like the present to prepare for your future!

Source: Pacific Life, In Pursuit of Retirement.

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