Tightening The Belt

With America's credit rating being downgraded it should be a clear clue to each of us that we have to make some changes.

What types of changes are necessary? There are three changes that I believe we should make immediately.

Change the way we view credit.

With the average American household being in more than $16k in credit card debt we need to see change. Many view credit as a means to access more cash when they don't actually have the cash. This is the wrong mentality to have.

Credit is designed to assist a responsible person or business to use the bank's money while theirs is being invested. The idea here is that you and I should only use credit cards if there is an extreme emergency and we don't have the cash or if our money is being invested in something that is earning more of interest than we are paying the bank. If neither of these are the case, then we should keep the plastic in our pockets.

Change our posture on needs and wants.

There has to be a clear definition for each of us as to what a “need” is and what a “want” is. Here is the way I view the two. A “need” is something that is essential to survival (i.e. shelter, clothing, food). A “want” is anything outside of a need. For instance, I need shelter but I may want to live in one of the most exclusive zip codes in my city. This is where many people get it wrong. It is human, especially in America, to confuse a need with a want.

The second part of the definition is that once the “need” has been meet and there is the financially wherewithal to afford anything else, we can then and only then, explore the acquisition of any “wants.”

Do you have a clear definition of the two? If not, you have to develop one and prioritize your needs over your wants.

Change the manner in which we spend.

This bleeds from the second point. We have to learn to live beneath our means. Typically the first step in doing this is to learn to live on eighty percent of our net income. After mastering that, the next step is to live on fifty percent of our net income. How do you do that you may ask?

This can be accomplished by following the items in this blog, creating a budget and sticking to them both.

You can do it!
Go get 'em!