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Resolve to Go on a Crash Savings Diet

As a parent of a teenage daughter--and as an aging almost-sixty-something Baby Boomer In Denial-- I’m not unfamiliar with the shopping ritual—especially since I live in New Jersey, where there are four malls for every person. “Maybe THIS shirt will make my flabby arms look good!,” I’ll convince myself. Naturally, my daughter is willing and able to perpetuate my state of denial--especially if it means I’ll let her buy more stuff as a result

Shopping is okay if you don’t go crazy and buy stuff you can’t afford and/or don’t need and/or costs too much. For example, I can’t think for the life of me why anybody would spend $3,000 for a TV; I don’t care how many bells and whistles it has. I just forked over $1500 for a new PC but at least I’m getting a machine that thinks.

Here are the scary stats about our spending and borrowing habits.

• Americans currently owe nearly $9 trillion in debt—accumulating nearly 40% of it in the past four years.
• Over the past three years, Americans have borrowed more against their homes than they’ve invested.
• Eighty percent of college students carry credit cards—21% of them owe more than $3,000.

Why credit costs so much: Banks appear to fall all over you to offer you a low mortgage rate but credit card companies typically don’t—unless they’re luring you away from a competing company, and even in that case that low rate probably won’t last long. Why? A car loan or home mortgage is a secured debt: in which the lender holds something that is at least as valuable as the amount of the loan, something known as collateral—essentially the lender “owns” your home or car until you pay it off. Think of collateral as a security deposit for the lender.

On the other hand, credit card companies can’t seize that dinner for two you enjoyed last Saturday or the vacation to the Bahamas that you took last year. Because this debt is unsecured, the companies charge higher interest.

As you Suze Orman fans already know, credit card companies charge more for risky debt the same way insurance companies charge more for risky drivers. Your credit score is determined by your payment history, outstanding debt, length of credit history and other factors.

The chart below shows some mind-boggling numbers: someone with a poor score pays almost double in interest what someone with a great score does. Think about: in the case of a mortgage—a debt that just about everybody has to incur to buy a house—you’re paying twice as much for a house than someone with a good score is paying.

Ready to start saving? Does it seem like it’s going to be a lot of work? Forgive me for comparing saving to dieting but there are striking similarities. Both efforts require will power, patience and the ability to resist “peer pressure” to go back to old habits.

Like a diet, however, the hardest part about developing new spending habits is deciding to do it. Once you start seeing results you will be amazed and pleased about how much money you’re saving, the same way you’re thrilled the first time you discover you’ve got down a pant size or two. You have this incredible sense of control over yourself.

We’ve listed some great resources below to help you get started. Don’t be discouraged if it takes a while for you to reach your goals. Like a diet, wealthy and healthy savings habits take time to take shape. But the same way you have more energy with a healthy lifestyle you’ll feel financially free after you cut down on spending—like you’re in charge instead of the debt “owning” you.

Sources to help you start saving:

A Great Book: Debt-Proof Living by Mary Hunt (She’s also written Debt-Proof Your Kids and Debt-Proof Your Holidays.) In Chapter Two, she relates a chilling story about another reason why it’s a good idea to check your credit report: to ensure that somebody hasn’t “stolen your identity” and rung up charges in your name.

Great web-sites:

Great places to get a “debt check -up”:
http://www.myvesta.org/: Check out their “debt eliminator.”

Get your credit score: It’s worth the money if you’re concerned: www.myfico.com.


"Crack open this book and enter a bromide-free zone. Jane White knows why American families feel as if they are on a treadmill running out of control, and she explains the reasons with clarity, insight, and rare honesty. She also offers several practical suggestions for how we as individuals, families, and a nation can get out of the mess. Policymakers would be wise to listen."

-Evan Cooper, Deputy Editor, InvestmentNews