My wife and I have been teaching a Family Relations class at church that includes a section on money management. Writing all of these posts on finances has come in handy as I have a lot of material on the topic of money.

I want to share some of the principles and take-aways from our last lesson which focused on the basics or foundation to good money management.

Live on less than you earn

If you aren’t familiar with it already, that video clip is a duplication of an old Saturday Night Live sketch with Steve Martin.

Hopefully, you already know that you should live on less than you earn. But actually doing it can be pretty hard sometimes.

“I have discovered that there is no way that you can ever earn more than you can spend. I am convinced that it is not the amount of money an individual earns that brings peace of mind as much as it is having control of his money.”

– N. Eldon Tanner

Read the first line of that quote again if you need to – I did. The message is simple – there are always things to buy and ways to spend money regardless of how much money you make.

The key to happiness is to avoid the bondage that comes with debt. Money and interest can be a very cruel taskmaster when used improperly.

Owe no man anything

A hundred years ago, having a mortgage would have been considered filthy or immoral. If you wanted to own land or a home, then you worked and saved for it.

Most families built their own home.

And yet, debt financing a home today is the standard. Saving enough money to buy a home seems unfathomable to so many.

Banks and lenders have done a great job teaching us that we need their money. It’s a lie. A complete and total lie.

That lie created the collapse in the housing market over the last several years. Consumers believed that we had to won a home – it’s the American dream. Banks believed that we’d never foreclose on the American dream and that home prices would always go up.

Unfortunately, inflated home prices caught up with too many and the bottom fell out.

So how do you avoid having a mortgage?

Dave Ramsey tells a story that I love. He describes a young couple that make a combined $80k a year. They rented a small place and lived on $30k and saved $50k every year. After four years, they had $200k in the bank. They found a modest home for $150k and then spent the other $50k furnishing it however they wanted to.

Awesome!

I’m sure you are thinking, “Yeah, well, I don’t make $80k a year,” or, “I have more expenses and kids and blah blah blah.”

If you are thinking anything like that then you need to change your paradigm. You need to change how you think about money.

It might take you longer than four years but you can do it. You can own a home without a mortgage. You can own a car without a car payment. You can have what you want..in time.

Learn to be patient.

If decide that you just have to get a mortgage, then at least save enough to secure a 15 year mortgage. You will pay substantially less.

Tips for spending less than you make

Saving that much money takes a lot of discipline and time. Let me give you some pointers.

• Setup auto-savings – Determine how much you are going to save each paycheck – let’s say 20%. Use direct deposit or automatic transfers to put that money into a separate account that is not easily accessed or spent. Basically, make the money disappear and forget it’s even there. Don’t rely on yourself to make the decision every paycheck to save the money.
• Develop and live within a budget – One of the most crucial factors in your success will be how well you live by a budget. Just to be clear, budgeting is not tracking how much you spend. Budgeting is setting limits to how much you spend and then living by those budgets. Some more bugeting tips.
• Cut up your credit cards – Just be done with them. If you have an issue with overspending, then take away your ability to overspend. I don’t care about the rewards – they are just gimmicks designed to take your money. Studies have shown that people who use credit cards spend more than those without. Fact.
• Use cash only – If you find that even with just a debit card you find yourself racking up overage charges or going onto an overdraft credit line, then move to a cash only system. Only use cash. If the cash is gone, then you are done spending. That simple.

 I may not have said too much in this post that you haven’t already heard or read. However, I do hope that you’ll walk away better motivated to make needed changes.

Take a look at your life today, target some specific areas for improvement and then go for it. But go all out and make it happen!

Louise Tillotson writes for a number of websites on debt management, household budgets, savings and other personal finance topics.

If you have debts, then chances are you’ve got less than healthy spending habits. If you constantly find yourself thinking things like “If only I hadn’t bought that, then I could have this” or running short of cash a fortnight before payday, then you could do with taking action, kicking a few bad habits, and tackling some debts before they take over your life completely.

I won’t go into ways of cutting down your expenditure as there is tons of information out there on how to do that, and much of it is common sense anyway. Suffice it to say, if you have outstanding debts, then you need to put yourself in a position where you have enough disposable income to cut a sizeable chunk off of the balances.

Determining your financial situation

In order to do this, you need to know exactly what your financial situation is in. Getting copies of your credit report and score is the best way to understand your finances since trying to remember each debt, income and expenditure means you could easily forget about crucial ones. The goal is to find out how much you have coming in, how much is being paid out, and how much is left over.

Understand your debt obligations and make a plan

As well as knowing what debts you have, you also need to know how much the total amount owed is, the term left on each one, and what the interest rate on each one is. The idea is to pay off the most expensive debts first and get them out of the way as soon as you can. Debt that is taken out over a long period of time and has a high rate of interest is going to end up costing you more than a short-term loan with the same or a lower interest rate.

If you have a few small debts that you think you could pay off in one go, contact the creditors and ask about a settlement amount. They may be reluctant at first; some like to keep you paying interest for as long as possible; but don’t take no for an answer. Ask to speak to a supervisor or manager, and negotiate a lower amount with them.

What about your mortgage?

As for the rest of your debts, commit yourself to paying off a percentage of each one every time you get paid. Structure these payments depending on the interest, term and priority of the debt. For example, a mortgage will technically be the biggest debt you have, but clearing it isn’t really a high priority compared to one which may have some late payments. Any debts which you’re consistently up to date with payments on won’t be harming your credit score, so concentrate on those debts which you may have fallen behind on, and get these up to date.

This form of debt management is slow, but steady. Keeping up with payments is actually easier than trying to play catch up if you get behind. When you’ve had to do it once, you’ll do your utmost not to have to do it again!