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In Over Your Head... Are You?
By Ellen Corsi
I think many of us have forgotten how to live within our means. How did it happen and when did this major trend start? That is a simple answer. However, fixing the issue isn't as simple as it sounds.
My view of this dilemma started back in the early 1980's. Our culture decided that we should start a competition of sorts with everyone else to own the biggest house, the most expensive car, take the most expensive vacations and basically, have the best of everything...whether we could afford it or not.
Here's a typical scenario: "It's almost the end of the month. All the bills are coming due. First mortgage, second mortgage, water, electric, phone, car, cell, insurance, cable TV, gym membership, credit cards, etc.... You begin to sweat as you lie awake at night wondering how you will make all the payments. Where is the money going to come from? All you seem to do is get further in debt trying to climb out. What can be done?"
Years ago, in prior generations, people paid cash for what they wanted to buy. Not homes, of course, or cars, but all of the more inexpensive "extras". They purchased homes they could afford, cars they could afford, and they slept at night. With the introduction of credit cards, most people didn't realize the trouble they could get themselves into by purchasing things on credit, credit that they couldn't afford.
It has become a thing of the past where living within your means, which is so much easier, removes the huge pressures put upon yourself to keep up with monthly bills.
This is the way I look at it: So what if you don't have the largest house, or the most expensive car? Who cares anyway? If you can sleep at night because you are living within your means, that's worth so much more than the competitive situation as to "who has what" that we have created over the last twenty-five years.
When you find yourself loaded down with bills that you can't possibly maintain it's time to take a hard look at what your income is providing and where you are spending your money. Most people don't even balance their checkbooks anymore, and don't pay attention to what they are spending until their credit is in jeopardy. It's tough to live this way when you are supposedly working to create a decent retirement situation in the years to come.
There are several ways to climb out of debt. By taking a look at what you are actually spending each month in relation to your income, you can see immediately what the problems are and rectify them. Generally, with debts like credit cards, taking the smallest balances first and paying them off, and not charging additional money on them will start to ease the burden. Credit card companies love it when you pay the minimum payments, because you will never get out of debt because of the finance charges they keep piling onto your balance. Make the payment higher the minimum to avoid so much more of the finance charges.
Take a look at all of the "extras" you are spending money on, such as gym memberships, dinners out each month, or anything that you are spending that is not something you absolutely have to have, like water and electricity!
Is your mortgage payment too high for what your income provides? Is your car payment too high as well? You need to take a hard look at these expenses. Banks and realtors love to tell you that you can afford more of a house, or more of a car than you really need to pay for every month. Although we "want", a lot of times, the practical reality is actually something else. A good rule of thumb about the amount of home mortgage payments is that they shouldn't be more than 25% of your income. Do you fit into that category? A more expensive house is great, until you are "house poor" and are socked with the payments each month. Another effect is that it limits money that you can spend elsewhere, such as vacations which we all need from time to time.
In some cases, with a mortgage payment that is in line with your income, and if your house has some equity in it, a debt consolidation through refinancing your home can be an immediate help. By doing this, you can move some of your debt into your overall mortgage balance, have smaller monthly payments and ease your burden. Mortgage payments are considered "good" debt, so if this is your conclusion after going through your debt to income information, it's a viable way to solve the problem. In many cases, you can pay hundreds of dollars less per month in one shot.
After looking at your finances as a whole, the conclusions will be obvious. The question now is how do I get out of this debt? You can take a slower but effective route, which is to start paying off those credit card bills each month and cut back on your extras, (gym memberships, dinners out, extra clothing purchases you really don't need, etc...) to start easing your burden.
If you don't want to cut back on your expenditures at all, another option is to start working a second job. This can be a great help short-term to pay off specific bills, but I wouldn't recommend it for the long-term. When would you have time to rest and enjoy anything?
Once you have your bills in check, make sure you don't do the same things that brought you to this situation. Any time you use a credit card, if you have to, it should be payable in full when you receive your monthly bill. If you can't do this, don't buy whatever it is you "want". When your money burden is eased, start putting some money away each month to handle any unforeseen expenses. Whether it's a new water heater, air conditioning repair, washer or dryer repair, or car repair, something will always come up.
We all want the best life has to offer. This is why the issue becomes tougher than it seems. However, do you want to live your life with undo pressure and constant worrying? I think it's more important to be happy in life with less, than to be pressured and losing sleep with more.
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