Still Not Onboard?

This article appears in the 47th Money Hacks Carnival at the Money Beagle. If you came from the carnival - welcome! I hope you will consider subscribing via RSS feed or e-mail.

According to the Federal Reserve Statistical Release on Consumer Credit released on December 5, 2008, the total amount of revolving consumer credit outstanding stood at $976.1 billion in October of 2008. Although overall consumer credit dropped 1½% in October, revolving credit was basically unchanged.

One statistic I read said that 70% of Americans live in the negative. That means not even living paycheck-to-paycheck but spending more each month then you have coming in. That’s scary. Are you one of them?

Here is a little “Are You A Financial Train Wreck?” quiz –

1. I will neglect bills to make an impulse luxury buy.
2. I will make a purchase based on what I feel I deserve.
3. I buy items out of guilt for my children whether or not I can afford them.
4. I buy name brand goods because of the emotional feeling.
5. I buy things based on monthly payments instead of monthly cost.
6. I lack a budget or plan based on my financial reality.
7. I lie to my spouse about my expenditures.
8. When I’m stressed-out, anxious or celebrating I spend money I don’t have.

According to the key, if you answered yes to five of these questions, you are a financial train wreck. I would think answering yes to any of the “I can’t afford” questions would put you in the running. Almost everyone I know lies to their spouse about their spending to some extent or at least delays revealing their expenditures until the most judicious time. (Okay, that’s not just a financial problem!) I also know a lot of people who, when making large purchases, think more about the monthly payments then they do the total price. I’m sure there are lots of people who would answer yes to all eight of the above questions.

Here are some more questions from another financial quiz I stumbled across -

1. Are you borrowing money or living off of credit cards to cover daily living expenses?
2. Do your monthly expenses exceed your monthly income?
3. Do your total household payments, long-term debts and major fixed expenses exceed 60% of your income?

More important than your answers to any of these questions, are you planning to do anything about it?

Here are a few tips, in no particular order, from Elizabeth Warren, author of The Two-Income Trap and All Your Worth –

1. If you shop for entertainment, find another hobby! Go to church, get involved in community activities, sports, gardening. Teach your children how to cook. Build new traditions with your children that center around your time together, not how much money you spend.

2. Make Saturday a family day - Sit down with your kids at some point during the week to discuss what to do on family day. Make family day a day filled with educational and inexpensive activities, like watching a Disney video together or cooking something new together. If you have to get away from home, go to a museum, a library, a park or a zoo — anywhere but the mall. Make a family pact not to go to the mall.

3. Sell some of your stuff and put the money in the bank (or use it to pay down your debt).

4. Pay your mortgage or rent first. (I hope everyone is doing this!)

5. Sell your new car and get a used one. Eliminate the huge car payments by purchasing a used car. You'll have more money and you'll be able to get from here to there. You don't need a fancy SUV either. You can get just as many car seats into a 1980 Suburban. Keep in mind, a new car loses 20-40 percent of its value as soon as you drive it off the lot. (I hear this one a lot. It makes sense to me but I always think about reliability. I wouldn’t really want to be driving around in a 30-year old Suburban. If I buy a new car and something goes wrong, I call the dealer. I would probably go no further than a late-model used car.)

6. Put 20% of your take-home pay against your debt. When debts are paid off, that 20% should go directly into savings. You need to prepare for your future: house, college, retirement, etc. (20% is certainly something to shoot for.)

7. Prioritize your debt.

8. Create an emergency fund.

9. Create a budget.

Whatever you do, make 2009 the year you turn things around. Have you made some financial resolutions or set some financial goals for this year? If the unexpected disaster strikes, will you be able to get back on track?