Spend Less Than You Make

You would think that this is a common sense, however, according to a Nilson report the average household carries $10,679 in credit card debt (Nilson Report April 2009). This tells us that instead of paying cash for something, Americans are buying stuff on credit cards and paying high and unnecessary interest on those purchases. According to USCourts.gov there were over 1.4 Million Bankruptcy’s filed in 2009. According to the FDIC, one out of every 200 homeowners will face foreclosure each year. I think you get the picture.

This is how we stopped this trend and I have found this is the best way to attack this with a vengeance:

1. Create a Cash Flow Plan aka a Budget

It is of the utmost importance that you track where every dollar goes, this way you can see where you might need to cut back. Here is a link to a standard budget form I created: General Budget Form

2. Use Cash not Credit Cards

I am not as die-hard as some that say you need to cut up your credit cards, but I will tell you that interest is a killer. According to CreditCardMonitor.com the average Credit Card interest rate is 16.28%. So if you don’t pay your card off every month, you are paying much more for you purchase then if you just use cash every month.

So you pay your Credit Card off every month, right? Well, A Dunn & Bradstreet study found that people spend 12-18% more when using credit cards than when using cash. It is Psychological, if you use cash to make purchases, you have a visible metric that when it is gone you have no choice but to stop spending. Credit Cards portray a bottomless pool to draw from at anytime, so a different spending pattern is developed.