Good spending decisions will save money, avoid debt

NEW YORK -- It may seem obvious, but one of the main reasons people get into trouble with debt is that they've never developed good spending habits.

It can be a real challenge in a society that thrives on consumerism: spending by consumers accounts for two-thirds of the U.S. economy. Yet bad buying decisions and overspending can leave a family with too little in savings for college tuition and retirement, and too much debt.

"There are almost no courses to teach us how to spend," said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Services in Fort Lauderdale, Fla. "Yet our lives are conditioned to spend. From the minute you wake up in the morning and turn on the radio, the ads are telling you to spend."

Resisting temptation can be difficult.

Ric Wade, 33, of South Miami, Fla., said he spent himself into trouble without realizing it. He lived off his credit cards while he and his brother refurbished several homes. When the houses were sold, his share of the profits covered just half of his bills.

"I was living in way too expensive an apartment," he said. "I didn't think anything of going out on Thursday nights for steak and beers. And I was ordering dozens of pizzas and other fast food."

Think about every dollar

Wade, who now markets franchise businesses, went to the CCCS for help and said the key was learning to think hard about every dollar he spends.

"I put money into savings every month, then I use envelopes for gas money, food, entertainment," he said. "If it's June 19 and I've got just $10 in the food envelope, it's tap water and half a chicken breast and a quarter of a cup of rice for dinner. Lots of dinners."

Wade admits he still struggles. He recalled going to an office supply store to buy a new printer for work and quickly finding himself approaching the cash register with the printer -- and a new MP3 player and a fancy alarm clock that plays CDs.

"Then I thought, I need the printer. I don't need this other stuff, and I put it back," Wade said. "You have to think about every purchase. When you do, a lot of them seem foolish."

The CCCS's Dvorkin said one of the most difficult things to teach people is how to balance a budget: What am I making? Do I need to cut basic expenses, like housing costs or car upkeep? If I spend X here, can I really afford Y there?

He recommends people write down every penny they spend for a month -- something he admits is a bit of a nuisance to do -- then take a hard look at where it went.

"People are almost always surprised at the results," Dvorkin said. "Spending is fun, it gives you immediate satisfaction. But it hurts at the end of the month when you don't have the money to buy milk."

A positive approach

Paul Richard, executive director of the nonprofit Institute of Consumer Financial Education in San Diego, has become a crusader for good spending habits.

"Most people don't have trouble keeping up with the Joneses," he said. "They have trouble keeping up with the payments. Unfortunately, they generally don't think about it until they're deep in debt."

Richard believes that part of the difficulty in educating people about spending is that the message is typically negative: Don't overspend. Don't charge more on your credit cards than you can pay off every month. Don't impulse buy.

He prefers a positive approach: Make a spending plan. Move to using only cash if that's helpful. Comparison shop for major and minor purchases. Separate "shopping" trips from "spending" trips. Wait for sales. Use coupons at grocery and drug stores, and take advantage of mail-in rebates. Consider stores that sell "seconds," rebuilt or used products. Do things yourself that you previously paid others to do. Find fun alternatives to shopping.

"It's not that people don't know what to do," Richard said. "It's that they generally don't take time to practice what they know."

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On the Net:

www.consolidatedcredit.org

www.icfe.info