How Ordinary People Can Survive the Tough Times

What people can do to survive the tough times is to develop the lifelong financial habits that will get them through this storm and every one that comes in the future. Here are some specific ideas:

1. First of all, junk the word "budget." For most people, it is worse than "diet" and means lack, scarity, crummy choices, deprivation. Instead, decide to have a spending plan, which is telling your money where to go instead of wondering where it went. If you study people who handle their money well, one of the things that pops up regularly is that they track their spending. Two steps are involved: first, decide how much you will spend in each category, then track your actual expenses. The easiest way to do this is on an index card you carry with you everywhere, either in your wallet or your purse. When you go to the ATM, enter ATM cash and forget tracking every cent. That is what really makes people crazy.

2. Saving v debt payment. In my opinion, go for paying down debt. You still have the capacity to "reborrow" later. Most people waste so much money on paying interest, particularly for credit cards! Right now credit cards carry an interest expense of typically 9-20% while savings accounts only pay 2-4%. Not only will you save on interest, but the psychological benefit is HUGE! You can't believe what a relief it is when people can say, "I paid off all my credit cards," or "I am out of debt completely except for my mortgage," or best of all, "I don't owe a cent to anyone for anything!! I am completetely financially free!" Debt really is slavery.

3. Most people spend double on grocery shopping what they have to spend if they would get serious about it. Shop from a list, never randomly walk the aisles. Pick generics, so long as they taste good (which is true about 95% of the time now.) Shop from the store specials, available in newspaper flyers and at the door of the grocery store. Plan your menus from the specials, not from what you are in the mood for. Stock up on things on sale. There's a great book called "The Grocery Store Game" by Janine Bolon that details all the ways people can cut their grocery bills in half. I recommend this book frequently.

4. The best protection in hard times is to do the little things right, day after day after day. Make sure that you are living on less than you make so that you can stay out of debt and save money every month. Learn to say no if saying yes means you have to take on more debt. Buying things with debt (credit cards or loans) simply means you are buying things you cannot afford. Participate in your employer's retirement program, whether it is a 401(k), a 403(b), a 457 plan or a SIMPLE IRA. At the minimum, contribute whatever your employer will match. Do a Roth IRA if you are eligible, particularly if you have no company plan.

In my opinion, the top of the list for getting on top of your finances is to track your spending. The reason this is so powerful is that most people are unconscious with their money. Their brain never gets in gear. They truly are not aware of how much they are spending or where they are spending it. Once someone begins to track their spending, the lightbulbs start to come on. You cannot change what you are completely oblivious to! Most people are oblivious to their spending choices until they start tracking their spending.

I have lost track of how many clients I have who have begun to track their spending after we began to work together. Without fail, within a year, every one of them has said it was the most powerful thing they have ever learned about handling money and that they feel like they are in charge of their money for the first time in their life. If you want much of the financial stress in your life to go away, start tracking your spending!