Stop Spending
“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” – Aristotle
There have been many articles during the housing boom about how Americans have been using their homes as ATM machines, refinancing their mortgages in order to fund their spending. The Economist.com explained it in these terms, “Owners who have been using their home like an ATM to extract cash, or who were relying on rising house prices to provide them with a comfortable pension, will suddenly realise that they need to start saving the old-fashioned way—by spending less of their income.” There is nothing wrong with using the equity from your home to fund the purchase of assets (e.g. rental properties), but be careful if you are using this money to buy liabilities (anything that does not appreciate over time -- $3 lattes are in this category).
“A big source of money problems, Tahira Hira says, is that people just don't know enough about their own financial reality.” They don't know what they earn, they don't know what it takes to live, and they don't know their discretionary income.”Her advice? Educate yourself. Sit down with your monthly bills and statements and figure out your income and outgo. Then, decide if you like the picture you see. If not, you'll need to create a plan for changing it. To help with the process, Hira recommends asking your self these three questions:
1. Who am I? What's my current financial picture?
2. How do I want to live? How do I want to use my money?
3. How can I make the best use of my money?
Treat managing your money like you would any other household task and allot enough time for it every month. Hira notes that many of the financial tools that have made life more convenient -- such as credit cards -- can promote bad financial habits and prolong debt when misused. Credit cards should be used as the cash-management tool they are, not a borrowing tool, she says. "We're spending tomorrow's money when we put things on a credit card," she says. "You keep locking yourself up and losing your freedom." Her bottom line on financial health? "Stop spending."
There have been many articles during the housing boom about how Americans have been using their homes as ATM machines, refinancing their mortgages in order to fund their spending. The Economist.com explained it in these terms, “Owners who have been using their home like an ATM to extract cash, or who were relying on rising house prices to provide them with a comfortable pension, will suddenly realise that they need to start saving the old-fashioned way—by spending less of their income.” There is nothing wrong with using the equity from your home to fund the purchase of assets (e.g. rental properties), but be careful if you are using this money to buy liabilities (anything that does not appreciate over time -- $3 lattes are in this category).
“A big source of money problems, Tahira Hira says, is that people just don't know enough about their own financial reality.” They don't know what they earn, they don't know what it takes to live, and they don't know their discretionary income.”Her advice? Educate yourself. Sit down with your monthly bills and statements and figure out your income and outgo. Then, decide if you like the picture you see. If not, you'll need to create a plan for changing it. To help with the process, Hira recommends asking your self these three questions:
1. Who am I? What's my current financial picture?
2. How do I want to live? How do I want to use my money?
3. How can I make the best use of my money?
Treat managing your money like you would any other household task and allot enough time for it every month. Hira notes that many of the financial tools that have made life more convenient -- such as credit cards -- can promote bad financial habits and prolong debt when misused. Credit cards should be used as the cash-management tool they are, not a borrowing tool, she says. "We're spending tomorrow's money when we put things on a credit card," she says. "You keep locking yourself up and losing your freedom." Her bottom line on financial health? "Stop spending."
posted by Nina Smith at 5:15 AM
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