Debt Free-OK Stay Poor Then

So you have slid down into the financial lake of fire– you did not intend to however the lousy economy makes it easier to do – adding some or all of the following bad habits will, I repeat, will make it a lot tougher to get yourself out. 

Some friends of mine had two cars which they financed at higher rates. The car payments were keeping them cash flow poor. They could not sell the cars because they were what is called upside down in them. This means that they owed more than they are worth. 

There were two solutions to this scenario. First, talk to the friendly banker who of course is always ready to help and arrange to sell the car and turn the owed difference into an unsecured loan (which it is anyway) therefore reducing the payment. Second turn the car over to the bank voluntarily. This accomplishes the same thing however the bank may not sell the vehicle for the highest price possible leaving a bigger difference.  Now the car payment saved can be saved for a beater car to get by with. This just the beginning step for these people to start getting their financial life back.

Well now such are the economics of being broke.

When you are short on money or the money you have never makes it to the end of the month, you're constantly backing yourself into financial corners. Unfortunately  rather than gradually building  wealth over time, you tread water or go eventually go under under all this working like a rat on wheel for the man.

Along the way, you might have been able to count on raises and bonuses at work and hopefully a gradually improving standard of living to help cut losses. But those doors are now closing for many due to the following points:

•Many incomes aren't growing the way they used to. As a matter of fact, when median incomes are adjusted for inflation, they fall below where they were in 1999, the Census Bureau states

•Inflation and health care costs are chewing, no devouring a bigger part of what we all are earning.

•Many people experiencing wider swings in their income

Obviously a swing upward in income is great, but not if you base your spending on getting some overtime at work and then your hours are suddenly diminished or your job position is eliminated. Setbacks like these, when you're already broke, can easily push you over the financial edge and into dreaded bankruptcy.

Big Mistakes Big consequences

With all of these headwinds, it's more important than ever to get to the basics of money management. Otherwise, you are just guaranteeing that you will stay broke by continuing to do the following:

Forgetting the really big stuff.  Most of the "save money" advice out there mainly focuses on the small stuff: how to cut back on sodas, coffee’s or lower your utility bill by a few dollars chasing around the kids and turning off lights. Those people out there that are dreadfully short of cash still often overspend on the big stuff, mostly on shelter and transportation. You still need a good credit history or score to take advantage of lower interest rates. Here is a way to get it. If your mortgage or rent payment eats up much more than 25-30% of your gross (I personally go by net) income or your vehicle is taking more than 10% (which includes the financing, Insurance, repairs and gas), you will have a very tough time making it all month.

Here's a great tip to estimate what you will spend on a monthly basis for any given car over five years: Double the price tag and divide by 60.)

Credit card debt, debt, debt,debt………...  Sounds endless right? I know you did not mean to do it. You just  into a emergency one month and did not or could not pay the whole bill, and somehow  six months later is has snowballed into a mountain. But carrying credit card debt costs you a literal fortune and puts you at the mercy of credit card companies and then collection company harassment. If you can't pay your bill in full, do not use credit , simple as that. Pay more than the minimum and make every effort to pay it off fast.

Confused over what are needs or wants. This one is big, definitely a problem for people at every economic level. When you are cash poor, the consequences of deciding you in need of something that's actually a want can be very devastating and long lasting. Being that our actual needs are few, including shelter, food, clothes, transportation and companionship. On the other hand our wants are endless and quickly will transform a need like clothing found at Walmart into a pair of $125 pair of jeans at Nordstrom. The challenge is figuring out what we really need, and how to get it for less, to help us get our finances back under control. If you find yourself saying, "I need this, that or the other thing”, try stopping for a moment and reconsider whether you really do need it or not. You do not have to live without it forever -- just postpone the getting of it.

Looking only at the payments.   Many businesses survive on getting you to lookpast the total cost of your purchase. Those Payday lenders, rent-to-own shops and lumpy car dealerships will have you to focus on the short-term payments, not the long-term expense. Avoid this at all costs. Anytime you consider a loan, bring your trusty calculator so that you can multiply payments by the number of months you will ultimately be on the hook to get the actual real cost of your purchase.

Failing to run on a Budget. You need to track where every nickel is being spent so you can make intelligent decisions about how to trim. Make sure that you are determining where you money is used. Technology makes doing it easier than ever before: You can use personal-finance software such as Money or Quicken, or sign up for on of the online solutions like Mint, Mesabe, Yodlee or Quicken Online.

On the edge living.  Every setback is an emergency without an emergency account.  Failing to have any emergency savings also increases the chances that you will bounce a check or two in the future, incurring expensive fees, and paying bills late, which will ruin your credit scores. A good score helps you get a better loan rate, insurance rate and even rent on a place to live.

Destroying what you have built. Most of us hard workers contribute to some kind of a retirement fund, usually that standard is a 401(k) account that they can take to their next job or roll over into an individual retirement account. Almost half at some point cash out when they leave a company. That's idiotic in my opinion. You will ultimately lose you hard earned fortune in taxes and penalties -- and worse, you lose the potential growth of that fortune because the money isn't there to grow and support you in retirement. People who take this wrong backward step and raid their retirement funds will be broke now and they will be old and broke later putting them into the 97 % of Americans who retire.