Sunday, October 11, 2009

Tips - The Road To Managing Your Debt Wisely

1. Control the use of Credit Cards
The golden rule in using Credit Cards: “Treat them like Cash!” If you don’t have the cash NOW to purchase something, don’t even think about taking the credit card out of your wallet! Using the credit card in such circumstances is essentially spending future income which may not be payable in full later. And this is the start of getting ourselves straight into the Debt-Trap. If you don’t trust yourself, then don’t bother having one or if you already have a few, cut them up before they cut into your bank account!

2. Know where your money is flowing
If you can’t track it, you can’t manage it! Develop a habit of recording all your expenses for the month. You may write it down in the “555 Pocket Book” or the PDA (for the tech savvy people). It is also a good practice to keep receipts. Add up your expenses and assess if you have overspent, by comparing it to your income. Analyze those items that are taking the most money out of your pocket and see if you can do anything about them. You’d be surprised how much you’re spending on those cigarettes, movies and “branded coffee”! The main thing is to never spend more than you make!

3. Minimize the “Nice-to-Haves”
One of the reasons people fall into the Debt-Trap is they don’t know how to distinguish between the “Need-to-Haves” and “Nice-to-Haves”. Food, clothing, home, life and health insurance and the like are Needs. You don’t need a pack of cigarettes a day. You don’t need a RM10 cup of coffee a day. You don’t need to wear branded clothes all the time. You may not even need satellite TV or that 42” Plasma/ LCD TV. Go through your spending record and identify items that can be cut. Sacrifices have to be made and the larger the debt or the smaller the income, the bigger the sacrifice.

4. Create a Budget
No country runs without a budget; neither should you. One of the most effective ways of managing our debts wisely is through proper budgeting. A budget gives us a “preview” of our financial position so that we can roughly estimate whether we would have a surplus or deficit. If our budget already shows a deficit, drastic actions have to be taken – you could either increase your income or cut out the “Nice-to-Haves”. In any case, a Budget is actually a Spending Plan that allows you to spend on areas that matters the most to you whilst ensuring that you don’t overspend.

5. Look for Cheaper Alternatives
Revisit your monthly budget and see if you can use any other cheaper alternatives for the necessary items. For example, toothpaste – can we switch to brands which give better value for money? Check its net weight and decide on purchasing the brand that gives you the same value for a lower price. Sometimes, cheaper may not always be better. What we should be looking out for is Value-for-Money. Is it cheaper and faster to take the public transport instead of driving? Is it better to shop for Christmas gifts much earlier, like during the Mega Sale instead of waiting till year-end? Think of creative ways of cutting your expenses and yet maintaining your quality of life. This can be fun too! Get your family involved by asking them to suggest and reward the person with the best idea.

6. Stay away from Temptations
As the saying goes, “Out of Sight, Out of Mind.” Many times when we go shopping for our groceries, we end up buying things that are not on our shopping list. This phenomenon is worse when we have kids around us. They tend to throw in a candy or a toy into the shopping cart and before we know it, we have spent more than we budgeted for. Parents are partly to be blamed as they too can be tempted to buy things that they do not need. Unable to resist the magnetic pull of products on discount, ice-cream, potato chips and that pair of sandals on offer get “drawn” into their shopping cart! And we can always justify our actions by rationalizing that “It’s on OFFER!” or “I’ll not buy anymore sandals for the rest of the year!” but… we’d know better! So, stick to your shopping list and keep everything else out of sight!

7. Remember to Reward Yourself
“All work and no play makes Jack a dull boy,” so goes the saying. Managing our debt and getting out of it is hard but it doesn’t have to be painful. Once in a while, you should reward yourself by buying yourself a well-deserved gift or treating yourself to a good hearty meal. By rewarding ourselves, we’d feel motivated to stay on track. You can actually organize a potluck at your place instead of going out to eat and amaze your friends with your culinary expertise. Have picnics with your family and think of creative games or activities that you can do as a family. Make this whole exercise as fun as possible and after a while, you will come to realize that a lot of the best things in life are free.
Source : Credit Counseling & Debt Management agency (AKPK)

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