You Have a Good Income but You're Still in Debt
You Have a Good Income but You're Still in Debt
Elizabeth Warren
Harvard Law School
Amelia Warren Tyagi
The Business Talent Group ou might expect that the two-income families of today would have a higher standard of living and greater financial security than the single-earner households of past generations. The fact is, most families are buried in debt. In 1981, the average family owed just 4% of personal income in credit card and other unsecured debt. Today, that figure has tripled to 12%.
The standard advice for getting out of debt and living within a budget often fails to yield results because it's based on an outdated 1950s model -- one wage earner per household and limited sources of credit.
If you have a good income and you're still struggling with debt, try these new strategies...
smarter spending
Old Advice: Cut back on small luxuries... brown-bag your lunch... clip coupons.
New Advice: Focus on big, recurring expenses. Most middle-class Americans today are sensible people who aren't blowing their paychecks on frills. The real issues are their exorbitant fixed costs -- mortgage payments, premiums for health and other insurance, college tuition and car payments. Reassess those big expenses -- checks you write month after month without thinking about them -- to determine whether you are getting the most for your dollar.
Examples: Payments for a second car you might be able to do without... private college tuition when a less expensive public university might be fine... high-cost health insurance instead of a lower-cost HMO.
Monthly services
Old Advice: Negotiate the best deal you can for services you pay for each month, even if it means taking out a long-term contract.
New Advice: Avoid long-term contracts whenever possible. What you need in the event of a financial crisis is flexibility. In the long run, multiyear contracts for such things as satellite television service, cell-phone plans and gym memberships may cost you more in termination fees and regrets than higher-priced, short-term contracts.
mortgage payments
Old Advice: Buy as much house as you can afford by borrowing the maximum amount of money your lender will allow.
New Advice: Don't trust your mortgage lender or bank to tell you how much you can afford. Forty years ago, home buyers couldn't get interest-only loans or loans with "no money down." Lending standards have since been relaxed as competition has increased. Result? Many people are house-poor because banks have awarded them mortgages that are beyond their means.
If the only way you can meet the payments for your home is to commit to a risky mortgage that totals more than 28% of your combined incomes, don't do it. Find a house you can afford -- or consider renting a house or an apartment until you can truly afford to buy.
Debt control
Old Advice: Pay off your highest-interest debt first. Then move on to the next highest, etc.
New Advice: Pay off debts that bother you the most first. Being in debt is not only about dollars and cents. It's about peace of mind, too.
Is there a bill that makes your blood boil every time it appears in the mail or frequently sparks a quarrel with your spouse? Paying these bills first may not technically be the most efficient way to use your money, but it can have a significant and immediate impact on your sense of well-being.
Better budgeting
Old Advice: Agree that only one spouse will handle the finances, so that the other spouse is free of the responsibility.
New Advice: Each spouse should accept 100% of the responsibility for the finances. Both spouses need to create ground rules for spending and paying debts, even if only one spouse actually handles the paperwork. Otherwise, the more financially responsible spouse winds up nagging, thereby increasing the conflict and tension in the marriage.
The money and bills legally belong to both of you, even if you find it more convenient to manage them from separate checking accounts.
Make it easy for your partner to be truthful. Spouses may tell white lies about money because they don't want to justify their purchases. Promise your partner that you'll never question his/her spending as long as he stays within the household's budget for discretionary or "fun" money
Elizabeth Warren
Harvard Law School
Amelia Warren Tyagi
The Business Talent Group ou might expect that the two-income families of today would have a higher standard of living and greater financial security than the single-earner households of past generations. The fact is, most families are buried in debt. In 1981, the average family owed just 4% of personal income in credit card and other unsecured debt. Today, that figure has tripled to 12%.
The standard advice for getting out of debt and living within a budget often fails to yield results because it's based on an outdated 1950s model -- one wage earner per household and limited sources of credit.
If you have a good income and you're still struggling with debt, try these new strategies...
smarter spending
Old Advice: Cut back on small luxuries... brown-bag your lunch... clip coupons.
New Advice: Focus on big, recurring expenses. Most middle-class Americans today are sensible people who aren't blowing their paychecks on frills. The real issues are their exorbitant fixed costs -- mortgage payments, premiums for health and other insurance, college tuition and car payments. Reassess those big expenses -- checks you write month after month without thinking about them -- to determine whether you are getting the most for your dollar.
Examples: Payments for a second car you might be able to do without... private college tuition when a less expensive public university might be fine... high-cost health insurance instead of a lower-cost HMO.
Monthly services
Old Advice: Negotiate the best deal you can for services you pay for each month, even if it means taking out a long-term contract.
New Advice: Avoid long-term contracts whenever possible. What you need in the event of a financial crisis is flexibility. In the long run, multiyear contracts for such things as satellite television service, cell-phone plans and gym memberships may cost you more in termination fees and regrets than higher-priced, short-term contracts.
mortgage payments
Old Advice: Buy as much house as you can afford by borrowing the maximum amount of money your lender will allow.
New Advice: Don't trust your mortgage lender or bank to tell you how much you can afford. Forty years ago, home buyers couldn't get interest-only loans or loans with "no money down." Lending standards have since been relaxed as competition has increased. Result? Many people are house-poor because banks have awarded them mortgages that are beyond their means.
If the only way you can meet the payments for your home is to commit to a risky mortgage that totals more than 28% of your combined incomes, don't do it. Find a house you can afford -- or consider renting a house or an apartment until you can truly afford to buy.
Debt control
Old Advice: Pay off your highest-interest debt first. Then move on to the next highest, etc.
New Advice: Pay off debts that bother you the most first. Being in debt is not only about dollars and cents. It's about peace of mind, too.
Is there a bill that makes your blood boil every time it appears in the mail or frequently sparks a quarrel with your spouse? Paying these bills first may not technically be the most efficient way to use your money, but it can have a significant and immediate impact on your sense of well-being.
Better budgeting
Old Advice: Agree that only one spouse will handle the finances, so that the other spouse is free of the responsibility.
New Advice: Each spouse should accept 100% of the responsibility for the finances. Both spouses need to create ground rules for spending and paying debts, even if only one spouse actually handles the paperwork. Otherwise, the more financially responsible spouse winds up nagging, thereby increasing the conflict and tension in the marriage.
The money and bills legally belong to both of you, even if you find it more convenient to manage them from separate checking accounts.
Make it easy for your partner to be truthful. Spouses may tell white lies about money because they don't want to justify their purchases. Promise your partner that you'll never question his/her spending as long as he stays within the household's budget for discretionary or "fun" money
posted by ilexia at 4:45 PM
0 comments
