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Thursday, April 28, 2011

So you think you know how to handle money??

With April and Financial Literacy Month drawing to a close I wanted to do one blog on money. Something we all need but seem to never have enough. On the topic of money it is hard not to go into my “parent” mode and sound “preachy.” Certainly my kids can tell you about how well I do that.

In our consumer society the number of “things” we need to have to survive seems to grow exponentially every year. Our “wants” blur with our “needs.” What a few years ago seemed needed, a land line phone, TV which was free, one car per family, houses averaging under 1500 square feet, one bathroom per house and eating out being for a few holidays a year, seem so inadequate today. Paying off your mortgage was a goal for people before they retired. A house was where you lived not your investment.

This problem seems to have even spread to Washington where you reduce revenue (Bush tax cut) increase spending (Defense Department, Medicare and Social Security) and pay for everything on credit (national debt).

In Howard County we have a great resource that provides education and counseling on financial literacy ---makingCHANGE. I have gotten to know Michelle Glassburn the past few months and the excellent work that she does with many county organizations on financial literacy. I have asked her to give me some important points to share with you.

“The biggest mistake people make is to spend without really knowing where their money goes -- no budget... I've worked with SO many people of different socioeconomic backgrounds... whether you are the homeless guy that doesn't realize how much money you are spending on your addiction or the middle class family that's struggling with money but paying thousands to Verizon for tv, internet, phone and cellular -- the key is awareness. You can't effectively diet without knowing what you weigh and how many calories you're taking in...and you can't be financially successful if you don't know where your money is going.

The second biggest issue is a little tougher. In true Oprah-esque terms -- you have to live an "authentic" financial life. You need to face the debt demons that are on your credit report (lots of folks don't even pull the report b/c they know it shows trouble...). And you have to live within your means. If you earn $60,000, you have to stop living a $120,000 lifestyle. I don't care what your parents have, how you grew up, what your neighbors do, etc. We get so caught up in putting on this "front" of showing success in Howard County. It's almost easier to tackle these issues with folks in the city -- not as much keeping up with the "Jones's".

If there's one QUICK thing people can do to get started, I'd say to add up what they are paying for tv/internet/phone/cellular. Remember -- we've been led to believe this stuff is now a "need" -- but it is NOT. Remember 1992? We paid for our phone - that was it. And guess what, it's not any different today.... it's just that Comcast and Verizon have convinced us otherwise.”

I would like to add a few suggestions to Michelle’s. First you need to “pay yourself.” Have an automatic deduction of 10% that goes into a savings account. The amount should be 10% until you have an amount equal to 3 months of expenses. This will allow you to cover unforeseen expenses (house repairs, car repairs, medical bills) without charging or borrowing. When you reach the savings goal have 5% of the amount go into a 401K or some other form of investment and continue the other 5% into savings. Don’t think you can put this amount away from each check? Look to cut expenses until you can because you are living beyond your means and will pay someday---it is just a matter of time.

The second suggestion is when you pay off your car loan you continue to put the monthly payment into a separate savings account to be able to pay cash when you buy your next car. Have you ever looked at what you paid for your car with interest? A $20,000 car can easily end up costing $24,000 or $25,000 depending on the terms.

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