But on their fourth wedding anniversary, they came face-to-face with an unpleasant reality. Regardless of how they economised, they were unable to pay their bills. What was part of their problem? – Unwise spending habits and credit card debt!
In fact, both owed over $13,000.00 on their credit cards.
Most money problems can be solved with proper money management; however we are living in an age when many are bombarded by popular advertisements and are enticed to buy the latest and most expensive brands in clothing and technology. This was one of Uncle Jones’ and Aunt Rosey’s major challenges – trying to keep up with the latest brands of smart phones and apparel. In fact most of their purchases were done online using their credit cards. Using credit cards is easy; you never see when the money goes. You simply provide your card to pay for an item or service, it is “swiped” or details keyed for verification and authorization. It is so simple that you may buy things you don’t really need!
When one is contemplating a purchase by using credit cards, do so carefully so as to avoid accumulating debts that do not add to your net worth over time.
Financial experts say the key to staying out of debt and managing your resources is to know ‘where the money is coming from and where it is going and to be willing to make rational choices.’
- To do this you need a Budget. Budgeting involves making a list of income and a list of expenses and then keeping the expenses within the income.
Make a list of your income: – For most of us this is mainly our salary. Do not count on income that is not certain such as overtime, gifts or bonuses.
List your monthly expenses: – You can use headings such as food, housing, clothing, tithes, loans, savings etc.
Remember to include annual expenses such as car and house insurance. Simply divide this payment by 12 to arrive at a monthly allocation amount.
Note that an important item of expense is savings; one expert says if you cannot save at least 5% of your salary, you will have to rearrange your style of living and get down to basics. However, you should actually save at least 10% of your monthly salary. It is also recommended that you try to establish ready savings of at least 6 months earnings for unforeseen circumstances such as sickness and unemployment.
‘If you get a raise, says one advisor, save half of it.”
- Think of each expense carefully – is it a definite need, a questionable need, nice to have or a luxury?
The discretionary spending or the questionable need or luxury should be excluded from your expenses in order to stay within the budget. Examine each item of expense to see if it is worth the enjoyment it brings.
- Cut back on debt wherever possible. Hire purchase interest and credit card charges are normally high and if you only make the minimum payment each month on your credit card, it will take you longer and cost you more to clear your balance.
- Haggle or bargain. One person said ‘whenever I go to a store to buy something I always ask for a discount. Buy wisely; to do so you need to gather information before you make your purchase.
- Use possessions properly – after careful planning and buying, you should use your possessions properly. Taking care of your possessions is an important part of money management.
After considering the recommendations in the case above, Uncle Jones & Aunt Rosey now eat out only on special occasions as both now find that by cooking for themselves, they have reduced their food expense bill considerably.
In these critical and economic challenging times when we are bombarded with advertisements from every corner, pressure on family finances will increase. Hence, we need to exercise practical wisdom especially when handling our finances.
This article was submitted byWalter Blanchard, Credit Officer, CIBCFCIB, as part of the activities commemorating Financial Information Month, October 2013, celebrated under the theme “Reshaping Our Future – Starting Now”.