Author: Chillmaadi Admin

All it takes is one misstep to fall into a sinkhole of debt. Unfortunately, it may take several moves–some painful–to claw your way out. There are things you can do to begin the long journey back:

Admit your problem

It’s a cliché, but debt counselors say you can’t correct dangerous behavior unless you recognize that it is harmful. An easy way to tell if you’ve got a debt problem is if you don’t have enough money to pay all your monthly expenses plus your minimum credit card obligations.

Other warning signs include not knowing your credit card balances or how many cards you have, or if the number of cards in your wallet is in the double digits. Another signal is if you’ve started screening calls to avoid creditors. According to the book – How to Get Out of Debt, Stay Out of Debt & Live Prosperously, “You have a problem if your debt is causing you any discomfort or trouble.”

Calculate your spending

You need to determine where all of your money is going. So write down exactly what you spend every day–including lattes and the kids’ lunch money–for at least two months.

Set up a repayment account

With the money you save from cutting back on unnecessary expenditures, make automatic monthly deposits into a separate bank account. Do not use this money to pay your monthly bills. Use it to pay more than the minimum required on your credit cards and to fatten your emergency fund.

Prioritize debts

Before using your repayment fund, first sort out your good debt from your bad. The best debt includes tax-deductible, low-interest loans such as a mortgage. A low-interest car loan, though not deductible, is still good because it’s tied to a real asset.

Bad debt includes credit cards, which charge up to 25 percent annual interest or more. Use your repayment fund first to pay off the highest-interest debt. Some experts suggest paying off your smallest balances first, for a sense of progress.

Consider selling an asset

Your house or luxury car may be more than you can afford. Sell the car and choose something more modest. Use the proceeds to reduce debt. Once the cards are paid off, you can begin to save for a new model.

Be your own banker

Many 401(k)’s allow you to borrow against them. You’ll be repaying the loan with after-tax dollars. However, 401(k)’s typically charge loan rates much less than credit cards. And you’ll be paying yourself, rather than a bank. If you can’t afford to repay while making new contributions, don’t do it.

Negotiate with creditors

Be courteous, but suggest that you might transfer your balance to a competitor with a better rate. They may agree to lower your rate; it costs them more to find a new customer than to keep you.

Freeze your credit cards

Put your cards in a block of ice in the freezer. That way, the next time you get an impulse to buy on credit, you’ll have to wait for the cards to thaw, and you may lose your urge to splurge. And beware: Microwaving your cards will destroy the magnetic strip.

I’ve written in the past how we are teaching the kids about finances. They each have their own tithing, spending, and saving jars. But just because they know how to divide their money, doesn’t really mean they understand much about managing money. We try to teach lessons just during everyday occurrences and try to show our children that life is not about money, but money is a part of everyday life. Here are a few ways we are teaching them without really teaching them!

1. I have them check prices in the store. They like to look for sale signs, buy one get one free stickers, and especially the red target clearance stickers. I let them know what’s on the shopping list and they help to find the item and to compare the prices.

2. I talk about prices during shopping outings. If they see an item they like, I mention how much it costs and then compare it to something than can relate to (i.e. you would have to save all the money you get for your birthday to buy this!).

3. Playing board games that involve exchanges of money. Monopoly gives the kids a feel for buying and selling and in managing their money, even if it is only for play.

4. We let them in on our money conversations. The kids know that mom and dad take turns every week paying the bills. They hear our conversations about planned purchases. They see us give money to our Church and to other charity organizations.

I’ve written previously how we enjoy garage sales and hunting for bargains. A crucial part of getting deals is knowing how to haggle. It is a skill worth honing because in essence many financial transactions require some type of negotiation. Over the years, we’ve haggled prices on cars, homes, and medical bills to name just a few. The more skilled you are at haggling, the better you’ll fare at getting price reductions.

I grew up in a family of farmers so I learned the basics early – never pay full price and always haggle. It seems like nearly every purchase was negotiated and bargained for – farm equipment from the local tractor store, milk from an uncle’s dairy farm, vegetables from the farmer’s market. Whatever it was, I enjoyed watching my Dad go through his method for getting the best deal and I apply those now in my own negotiations:

1. First, I determine what I want and set a dollar value of how much I am willing to spend. This is a crucial step because it will come into play later when the negotiations are heating up. Sometimes I give myself a spending range; I aim for the lowest price but will accept a price any where in the range. If you are shopping at a garage sale, know what you are looking for and know how much you are willing to spend. This obviously will require some adjustment if you are just browsing for good deals and are not looking for a specific item. But the basics remain – always strive to pay less.

2. When I find something I want, I do not make a big deal of it. I don’t let my emotions show that I really want this item, even if it is something that I’ve been searching a long time for. A simple question gets the haggling started, “how much do you want for this?” This establishes a basis for the future negotiation of the price. Alternatively, if I am having a garage sale, my answer to this question is “make me an offer.”

3. Make a counter offer. Now the actual numbers are exchanged. Don’t rush this step. Give them time to respond. Become comfortable with silence.

4. If I really am unable to negotiate to an acceptable price, I just say “no thanks” and walk away. Sometimes they will lower their price and sometimes they won’t. This is where step 1 comes into play – I know the actual dollar amount I am willing to spend and if I can’t negotiate to that price, I walk away.

Before I became a frugal shopper, I didn’t even consider buying store brands. I stuck with the name brands – the ones I recognized and had always used. However, little by little I ventured into trying store brands and to my surprise I found that many were of the same quality as the more expensive brand names! Many times the store brands are packaged by the same processing plants where the name brands are produced but store brands are sold at a lesser cost because fancy packaging is not used. I found the best way to approach store brands is to try them little by little. Some products you will be very happy with and others you won’t like as much. Here are some store brands that work in our family:

1. Contact solution. We used to pay top dollar for the brand name contact solution. We’ve since switched to Target’s brand and are very happy with the product.

2. Hand lotion. We have several allergies in the family so we need to buy the hypoallergenic types of lotions. We’ve found that Target’s brand of hypoallergenic lotion works for us – and at a substantial discount too!

3. Pain relievers. Either Target or Walmart store brands of pain relievers work just as well as the name brands.

4. Oatmeal. I’ve found that store brand oatmeal tastes exactly the same as brand name and works just as well when baking oatmeal cookies!

5. Liquid hand soap. The large refills of the store brand soaps are a big money saver and work just as well as the name brand bottles.

6. Dental Floss. Target’s store brand of dental floss is comparable in quality to the higher priced name brands.

7. Saltine Crackers. We much prefer our store’s brand of crackers to the name brands.

If you are trying to find a good deal, you need the ability to know when it is a good one and not just an advertising pitch. I’ve made price watching a hobby, so many times when I see an ad I will automatically know if it is truly a good deal or not. This is definitely a skill I’ve perfected by continual practice but it can still be difficult to recall from memory the best price when tracking multiple items. I’ve found an easy way to help trigger my memory when it comes to product prices – I keep a price worksheet and I track prices by item and store.

Originally, I started this to track grocery store items but I’ve since expanded it to include household items and other products that we regularly purchase. This master list shows me at a glance the normal price for a particular item so when it goes on sale I can quickly tell if it is a good deal or a dud. I’ve also begun adding items to my worksheet that we are considering purchasing. This forces me to comparison shop when I purchase an item and also gives me time to curb impulse spending.

My pricing worksheet is set up on a spreadsheet so it is easy to update. The important thing to note about a price comparison worksheet is that you have to keep it updated regularly. If you don’t want to keep a spreadsheet then a simple notebook works just as well. Here are some steps to consider when keeping a price comparison worksheet or notebook:

1. List item name, brand, and size. A price comparison won’t work if you are not comparing the identical item store to store. This will also help you to calculate the unit cost per item.

2. Update the list frequently. If the last time you purchased a certain product was a year ago, chances are the prices have changed. Make it a habit to frequently check prices and keep them current.

3. List price by store. You’ll need to compile information from at least 2 different stores but it really helps to have 4 or 5 to make a good comparison and see trends. I usually list the local discount stores like Target, Wal-Mart, Costco, Publix, Sam’s, etc.

I was thinking about frugal living, specifically how we manage our own finances and approach life in a frugal manner. I realized that we don’t go around saying things are “frugal” but rather we have incorporated frugal practices into our daily routines and more especially in regards to our financial decisions. They are automatic now so we don’t have to stop and think about them.

The first key to frugal living is to plan purchases in advance. This step allows us to make informed and conscious decisions in how and when we spend money. Although we have not completely mastered our impulse spending, it has greatly diminished through the use of this step.

For example, the month of June has just started. I took a few minutes to scan my calendar for the month and make notes of any occasions that are going to occur. I note that Father’s Day will be coming up so I will begin planning now for any gift giving and/or celebrations we intend to have. In July I know we will have a birthday to celebrate in our family so I’ve begun planning for that party. We’ll also be attending a couple of birthday parties for my children’s friends, so we are planning now for the gifts we will be giving them. Also, I’ve begun saving $20 per week (just setting it aside in our checking account) for gifts we plan to give at Christmas time.

If you do not have an emergency fund, you’ll want to work on getting one set up.  An emergency fund is just that – it is the equivalent of 3 to 6 months of living expenses, set aside in an easily accessible account to be used only when financial emergencies arise.  It allows you to handle unexpected bills without incurring debt and can provide a feeling of financial security.  Let’s take a look into the details of this emergency fund:

Why do you need an emergency fund?

Unexpected expenses are a part of life.  The car will need to be repaired, the water heater will break, jobs will be downsized, etc.  When these things arise, the emergency fund will provide a way for you to pay the bills without using your credit cards or incurring another form of debt.  It really is a key element in a debt-free living plan.  These things do happen in the real world so be ready for them.  It will give you a measure of security to know that you have saved up for the unexpected.

Why set aside 3 to 6 months of living expenses?

This is the current “rule of thumb” for an emergency fund.  For a family with one income earner, something more in the 6 to 8 month range of savings might be more wise.   The whole reason for having an emergency fund is to give yourself a financial cushion.  You’ll need to assess your own financial situation and determine how much of a cushion you want to have.

Where do you keep your emergency fund?

You will want to keep your emergency fund in a savings account or in another similar  manner that is very liquid and easy to get to, but not so easy you are tempted to spend it.

How do you fund it?

Set it up as a monthly bill to yourself.  You might want to make interim goals, such as “I want to have $500 saved in my emergency fund within the next 2 months.”  When you reach an interim goal, then set a goal for the next phase.  Find areas in your current spending where you can spend less, and then use this amount to help build your fund.  Use tax refunds, bonuses, overtime pay, or commissions to help fund your emergency fund.  One important note here: Do not use credit to build your emergency fund.  That is defeating the whole point.

So when have we used our emergency fund?

In the last few years we’ve used our fund to pay for hurricane damages to our home, car repairs to our van, and large medical expenses.  Having our emergency fund in place allowed us to weather these large cash outlays without going into debt.   We paid money back into our emergency fund after each of these events so that the emergency fund is now back to its full amount.

This is a question I have seen mentioned on several personal finance blogs – Should you focus on spending less money or making more money?  Over the years we’ve struggled with this choice as well, and we came to the conclusion that with our circumstances it made more sense for us to focus on spending less money.  We’ve made the decision to focus on spending less because it is something that we have control over right now – We could sit down at any time and make a list of ways to cut spending, which would make our “spending less” goal immediate (once put into action.)

Certainly, earning more is definitely a good goal to have as well.  If you were looking to earn more, you would need to start looking for a method to earn more which might entail getting your resume up to speed, filling out applications and going on interviews, and so the results would not be as immediate.  Certainly, earning more is desireable but if earning more equates to spending more, either because of child care expenses, increased transportation costs, or eating out more often, then the net effect may not be as large as one might have anticipated.

There are many ways to tackle the issue of spending less but for us it amounts to a very simple thought, “how can we ________ for less.”   Now this has meant that some things we would like to purchase are not feasible.  There really is not a way to purchase a brand new SUV for $5000.  However, when confronted with the purchase of something we want, we try to look at the underlying desires to come up with a more inexpensive alternative.

Using the above example of purchasing a brand new SUV, we analyze what it is we are really looking for:

1.  Reliable transportation.
2.  A larger vehicle that will accommodate our family.
3.  A clean and well kept vehicle that has a working air conditioner, heater, radio/CD player.

That is a little more concrete and defined than “we want a new SUV.”  We now have a list of details that are important to us, so we can work on finding an alternate solution which meets our budget goals and meets the specifications.

This method works in every area of spending from eating out to going on vacation.  We enjoy eating Mexican food so I’ve learned how to make a variety of Mexican dishes; Our family enjoys the beach so instead of going for a week, we go for a day.  There are many ways to find suitable substitutes at much more affordable prices.

Spending less is also a way to save money.  In fact, once you begin spending less, you’ll be amazed that you were ever spending more!  The money saved by spending less can be used in a variety of ways; your goal may be to get your emergency fund set up, save for college, or invest for retirement.  By training yourself to spend less, you will find the money to save.