Although the federal government and many household budgets have one thing in common, both are in the red, there is one critical difference: consumers cannot raise their debt ceiling in order to continue borrowing. Further, they cannot operate in the negative year after year, or financial doom is a certainty.
â€œMany consumers have been renting their lifestyle by living off of credit, and itâ€™s time they took ownership,â€ said Gail Cunningham, spokesperson for the NFCC. â€œFor some people, their financial situation has gotten so bad that they feel like even the light at the end of the tunnel has been turned off. But there is an answer, and it lies in going back to the basicsâ€
The NFCC recommends these four basic steps that are essential to building a new level of financial stability:
- Know where your money goes. The 2011 NFCC Financial Literacy Survey revealed that more than half of adults (128.4 million Americans) do not have a budgte or keep close track of expenses. Tracking your cash flow is essential to regaining control over your finances. Commit to writing down every cent you spend for 30 days. This can be a very eye-opening experience for many, as it often reveals spending patterns that need some serious adjustments.
- Build a budget. Once you have tracked your spending, you can then categorize it starting with living expenses, followed by debt repayment. At this point you may discover that youâ€™ve got more month than money, but thatâ€™s ok because youâ€™re now in control of your finances, thus you can take the necessary steps to resolve any deficit. Do whatever it takes to reconcile your income and expenses. This is easier said than done if youâ€™ve created a lifestyle that your income wonâ€™t support, of if a job loss is involved. Drastic changes may need to take place. Just make sure every decision moves you closer to your goal of financial peace of mind.
- Attack debt as though it was the enemy, because it is. You already knew it, but now itâ€™s time to do something about it. High interest credit card debt coupled with high debt loads can be toxic to any budget. If youâ€™ve dug a deep financial hole, stop digging. Do not add new debt on top of old. Put a freeze charging, with no exceptions allowed. If the balance on any card exceeds 30 percent of the credit limit, devote all extra money to paying down that debt. Creditors consider you a risk if you use too much of your available credit, and can then lower your limit and raise your Annual Percentage Rate making it even harder for you to repay what you owe.
- Commit to saving. Save for today and save for tomorrow. Not only do consumers lack a rainy day fund, theyâ€™ve recently discovered that itâ€™s raining and they canâ€™t even afford the umbrella. If this is you, do something about it. Have 10 percent of each paycheck automatically deposited into an interest-bearing savings account. Youâ€™ll never miss this money, and at the end of a year, youâ€™ll have a little over one monthâ€™s income socked away for emergencies. Plan for tomorrow by contributing to your companyâ€™s retirement plan. If they match your contribution, deposit at least that amount or youâ€™re missing out on free money.
â€œConsumers have allowed their finances to operate on automatic pilot for too long. They are now eager to move back into the driverâ€™s seat and get their financial well-being on course. The good news is that this is entirely possible, but it all starts with the basics. Implementing the above four elements will lay the foundation upon which consumers can build their financial future,â€ continued Cunningham.
For help turning these steps into action, reach out to an NFCC Member Agency. To locate the agency closest to you, call toll-free (800) 388-2227, or go online to www.DebtAdvice.org. For assistance in Spanish, dial (800) 682-9832.