Some say, "all but the most sophisticated people will spend a life time paying off their debt."
Is that true? If so why? Is debt a fact of financial life? Can only the rich afford to invest?
The word 'sophisticated' does NOT mean rich or well off. For example, does debt include mortgage payments? Technically it does, but the more worrisome part of most people's debt load is the debt on depreciating liabilities or non tangibles. Want two examples? Depreciating liability: car. Non tangible: Putting a weekend away or a meal out on your credit card and still paying for it a year later.
Tips for Personal Budgeting
A very worrisome trend is that more than 100% of North American's disposable income is going towards debt payments. That means wage earners are paying off debt with money they don't have. Is that sustainable?
One reader disagreed with the quote. She believes there are enough resources available to acquire the knowledge needed to manage debt wisely enough to have a debt freedom date in the foreseeable future.
Most think they are surviving if they are not bankrupt, some believe they are doing ok if they make all their minimum payments, and some exceptionally well if they make a little headway on their debt. Unfortunately all of these can still have us paying the banks unless we wake up and start to play it smart.
The bottom Line is: Do you need to become more 'sophisticated' about their finances specifically debt management?
Here are some observations that readers can reflect on:
- 41% of credit cardholders do not know what their balance is.
- Last year Visa sent out 5 billion credit card solicitations.
- Credit cards have been called the crack cocaine of the financial world.
- The interest Canadians paid on credit cards was $57.2 billion. That excludes lines of credit, car loans, and mortgages.
- Only a quarter of a percent increase in a credit card interest rate would mean cardholders would pay another $2.5 billion.
- Canada's Big 5 banks' profits in 2005 was $12.6 billion. Of that 50% was attributed to service charges.
P.S. Some of the banks claim they don’t have service charges anymore. What has happened is they are renaming it a delivery fee.
So it is obvious there is some serious money being made here at the expense of a lot of consumers. How? Because too many people don’t know what their balances are and are usually not aware when their interest rate increases.
In a previous issue we wrote how:
Poor people buy things, the middle class buy liabilities, and the investor buys assets.
The lending institutions rely on consumers buying many liabilities. And so far too many are doing
just what they want.
The most important action consumers can take to thrive instead of survive is to find out how they spend their wages every month.
Most people hate doing budgets. So let's do a backwards strategy:
You need a current pay stub.
The idea here is to subtract all your obligations that are the SAME amount every month. (Refresh the page to try the calculation again).
What is left is what you can spend with discretion. These expenses will be different every month. This category includes oney spent on food, transportation, utilities, entertainment etc. What are the two most important words in the last paragraph? They are discretion and etc. Why? It is here that so many make mistakes on their finances. They need to exercise discretion and examine the etceteras. While doing a budget can be helpful it is more important to find out where you are spending your money every month. That way you will know what should be left at the end of the month.
About the energy saving tips:
Three of the more interesting energy saving tips:
- How to get better gas mileage: avoid aggressive driving. Speeding, fast acceleration, and hard breaking wastes gas. Clear your car of extra weight, and remove roof racks or carriers if
not used frequently. Keep current with car maintenance. - I will add changing routes that I drive frequently has also helped my little SUV to conserve gas.
- Although not saving energy directly another interesting tip sent in was that water should be able to pass through your dryer filter. Apparently even if the filter is cleaned regularly and looks clean fabric softener buildup reduces its efficiency.
- Or, conserve energy and move out to a log cabin the country. Till Next!