Smart Money Management for a Tough Economy
One of the problems with learning to manage money is that there are no rulebooks and no manuals. Most of us learn our money management skills from the school of hard knocks, or – if we are lucky – from our parents. Few schools teach courses on how to manage money, and many colleges provide only a passing mention of money and investment.
The end result of this lack of education is a populace woefully unprepared to deal with financial matters. Many people find themselves on a never-ending treadmill of earning and consumption – making just enough to buy the latest gadget and pay the rent for the month. Over the last couple of decades, keeping up with the Joneses had become a national obsession, with everyone buying the biggest house, the most luxurious car and other trappings of wealth and success.
Unfortunately for those living beyond their means, much of that consumption was fueled by home equity – equity that quickly disappeared when the housing market crashed. Those who had levered their homes to buy the latest must-have toys were among the hardest hit by the recent recession, and many are still paying the price today.
If there is a lesson in all this pain, it is the importance of living within one’s means and putting money aside for a rainy day. Many of the most severe financial problems, from out of control credit card debt to falling asset prices, can be avoided – or at least mitigated – if consumers simply think about their purchases a little more carefully. Something as simple as saving up for a major purchase instead of buying it on credit can make a huge difference in your finances.
Of course it is much easier to avoid debt in the first place than to dig out of a big debt problem. Eliminating your current debt requires not only financial discipline and smart saving habits but often a change in the way you view money as well. Learning to see money in a different way is one of the most critical parts of getting out of debt and learning to live on what you make.
It does not matter if you make $20,000 a year or $200,000. If you spend everything you make, you will always be broke. A surprising number of high income earners found themselves in trouble when the recession hit, largely as a result of excessive debt and similar factors. No matter where you are on the income scale, there is a strong desire to keep up with the neighbors and buy the latest gadgets and toys. Learning to resist that urge is very difficult, but it will pay dividends for a lifetime.