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So you get a little cash for the weekend, and suddenly it seems like everybody's got their hooks in it? Your girlfriend, Exxon, your teenager, the Olive Garden, the cinema, The Gap. Your nephew's getting married, your neighbor's son is selling magazines, and you had to go to the emergency room with a broken jaw. That you got from a collection agent.
Not to mention your poor uncle, the one you've been supporting (or has he been supporting you?). He's back in debt again, this time to the tune of $7.788 trillion, as of last Wednesday. You remember Uncle Sam? Well, in case you're trying to forget him, he's looking to hear from you April 15.
What you need is a plan. Nothing that includes drowning yourself or anyone else. Just a plan whose result is making and keeping more money for yourself.
Advice is out there, in magazines, on television, in books, on the Internet and from your parents who maybe lived through the Depression. I've gleaned through a lot of it, and here it is in a nutshell.
First step: Become a penny-pincher
A. It's like going on the Weight Watchers diet. Instead of writing down everything you eat, write down everything you spend for at least a week. You may notice some flab in your habits. Peanuts from the vending machine — 50 cents. Manicure — $12. Magazine bought at grocery store — $5. Going over limit on cell phone — $68! Cable television extras you don't take advantage of — $25. Presents you couldn't afford — $59.99. Video late fee — $6. Cut out the flab.
If you need any convincing, take the cost of that "flab," such as the pack of cigarettes for $3, and multiply it by 365 days (or 52 if it's a weekly cost). That's $1,095 for the cigarettes. When you look at it that way, and think about how many hours you have to work for those cigarettes, too, you may become more determined. Quit smoking!
B. After the money diet, start exercising to save money. Mow your own grass. Edge your own grass. Clean up your own house. Wash your own car. Re-paint the living room yourself. Walk or ride your bicycle. Get your children to help out.
C. You have to eat, but do you have to eat fancy to be happy? You can get a meal at a fast-food place for $1 each, at a family-style restaurant for $8 each or at a upscale restaurant for $15 each. Or you can eat at home for $5 each. Fast food will super-size you, as the movie by that name indicates, so eating at home is your best bet.
Eat fresh fruits and vegetables without a lot of extra ingredients. Buy them in season from the produce stand. You should save money and inches. Or look for items you buy regularly on the sales sheets and stock up. Buy house brands and generics. Of course you know to shop without your little beggars if possible, on a full stomach and when you're least depressed. And check your receipts. You may find a mistake, but at any rate, you will become more price savvy.
D. Get serious about scrounging. Hold a garage sale; carpool, buy used anything — cars, clothes, pots and pans, dishes, furniture; stay home more; use the library, make use of state parks and public festivals for fun.
Second step: Pay off all your credit cards as quickly as you can and then cut them all up except one
If the interest rate on that one isn't the lowest, try to negotiate a lower rate or switch to another card.
A. When asked about this bit of advice, Orangeburg National Bank vice president and investment counselor Martin Gilchrist said the goal with credit cards should be to pay them off each month.
"Some cards offer air miles or reward certificates, but that's not a reason to have one," he said.
Gilchrist, who is a registered representative of the National Association of Securities Dealers, says if a person can't pay off their cards each month, they don't need to be looking into investments. "No investment is going to make them more than that is costing them," he said.
Robert L. Utsey of R. L. Utsey & Co., an investment company, agrees. Asked what he would do with a sudden windfall of $1,000, Utsey said he would pay off any outstanding credit card bills first.
"Then, I would add to my cash reserves, my rainy day fund for sickness or emergency," Utsey said, adding that the reserve, placed in an account from which withdrawals may be made without penalty, should probably equal three to six months of expenses, depending on the situation of the saver.
Third step: While you're paying down the credit card debt, set aside some money in savings and possibly toward a down payment on a home
For rules of thumb, David Bach, author of "Start Late, Finish Rich," suggests that once you cut out any extra spending (First Step above), take what you can save each month and split it 50/50, with half going to paying off your credit card debt and half going toward a nest egg. He suggests that someone with credit card debt pay $10 more per day over the minimum payment to get rid of the debt.
For those with debt on more than one card, Bach recommends putting all the debt into one account, if possible. If not, pay the minimum on all but the one with the least owed first and then pay the $10 more per day plus the minimum to that one until it is paid off. Then close that account.
For those who feel unable to handle their debt, credit counseling agencies can offer a needed service, but beward of companies that charge a significant fee up front and then monthly fees to set up a plan for you. Be sure you know exactly what their fee is. Nonprofit organizations are more likely to have your interests at heart than agencies who offer a fast-talking and hard-selling approach with employees paid on commission. Ask around for a referral. Bach recommends checking with the National Foundation for Credit Counseling.
Fourth step
"Once you have a cash reserve fund for an emergency or a rainy day, I would put part of my check into an pre-tax retirement account," Utsey says. "If there isn't one at work, I would open one up," Utsey says. "The Roth IRA is a very good deal."
"Some people work at places that offer a match and aren't taking advantage of it," Gilchrist said. "If they don't, they're giving away free money. They should contribute at least the match, if possible. Especially if a person is young, they need to start contributing, even if it's a little bit. The younger person should definitely try to do a Roth IRA."
Gilchrist says some experts suggest that people live on a 10/10/80 plan, which means they give 10 percent away to help others, save 10 percent and live on 80 percent. "The problem is when people try to live on 110 percent," he said.
Gilchrist also warns against cashing out retirement plans when you leave a job. "There's usually a 10 percent penalty for taking it out," he said. "There are options to taking it out, and if you do remove it, you pay taxes for the money and lose the benefit. Even if you want that big bass boat or the big screen TV, the money in a retirement plan is sacred stuff not to be touched unless it's life or death."
Fifth step: If you have completed steps one through four — you're spending less, out of credit card debt, have a cash reserve, have enrolled in a retirement account — invest in a mutual fund, stocks or bonds
Both Utsey and Gilchrist advise that what one does in this regard is so fact-specific that it is hard to advise about it without knowing an individual's situation. Whether a person is planning for college, retirement, owning a business, can tolerate a risk, has a large family or is in a job that could end suddenly — these are just a few of the factors that would play into how money might be invested.
"The most important thing is for people to tell the person they consult with all of the variables," Gilchrist said. "Sometimes they might not mention a factor that would make all the difference in the world; they have to give their advisor all the necessary information about themselves to get good advice."
Sixth step: Buy your home instead of renting
The rule of thumb for what a person can afford on a home has traditionally been monthly payments of 25 to 30 percent of their monthly income. Bach suggests having these payments directly paid from your check to the mortgage company so that you won't risk missing the payment. If possible, he says, make payments twice a month rather than once.