Money & Budgets

You’re Four Steps Away from Financial Security

Are you struggling to pay off debt, let alone save for retirement? Whether you’re a sucker for shopping or simply live above your means, get your financial future back on track with these expert strategies.

Getting your finances under control with ADHD

“Saving money? You’ve got to be kidding! I’d be doing well to keep up with my bills, never mind having anything left over to put away.”

I hear this refrain from many clients with attention deficit hyperactivity disorder (ADHD) when I suggest that they need to think about saving money for their child’s college tuition, their own retirement, or an emergency, like a transmission for the car or a new roof for the house.

Most U.S. households have trouble putting money away — statistics show that Americans, on average, save only 1 to 2 percent of their family income — and those with ADHD have an even harder time saving for their future. It’s difficult to resist impulse buys (“I’ve got to have that new cell phone”); to recall what you’ve spent (“I forgot about the fall clothing expenses when I decided to buy that new flat screen”); to plan and shop with an eye toward saving (“I’m lucky to get all my groceries for the week, much less worry about how much I might save on bananas or toilet paper”).

Your ability to save is, of course, tied to how deeply you’re in debt. So before I set you up with a successful savings program, here’s a plan to get you out of debt and to spend less.

First, Get Out of Debt

Your first goal is to live within your means — no more purchases on charge cards — while you pay off your consumer debt.

1. Transfer your consumer debt to zero-percent or low-interest credit cards.

The lower the interest rate, the less you will pay each month. Typically, such offers are sent to customers with good credit, but you can also find them online. (Compare offers on creditcards.com and bankrate.com.)

Credit-card companies usually extend the offer for only 12 months, and charge a 3-percent transfer fee for switching balances from other cards. The best offers require no transfer fee, but these are rare. If you haven’t paid off your debt before the offer expires, you’ll have to transfer the leftover balance to a new zero-percent or low-interest-rate credit card.

2. Set up automatic monthly payments through online banking.

This will ensure that your zero-percent or low-interest credit card payment is never late. You don’t want to lose this great rate.

Log onto your bank’s website, open an account, and sign up for online bill paying. Then create monthly payments for other bills you can start paying automatically. These bills should include predictable charges, such as a mortgage payment, and payments to utility and phone companies.

3. Add up the payments you have been making on your various higher-interest credit cards…

…and pay at least that total — preferably more — each month on your zero-percent credit card.

4. Don’t close your paid-off credit card accounts — having unused credit raises your credit score.

The higher your credit score, the lower the interest rate you’ll pay on mortgages and car loans in the future.

5. Keep your paid-off credit card in a safe but difficult-to-access place.

You might give your card to a family member. Explain that you’ll ask for it only in case of an emergency. Another option is to place the card in your safety deposit box.

Or — if you’re an extreme spender — try freezing the card in a block of ice in your freezer. By the time the ice melts, you will have figured out whether a prospective purchase is something you need or just something you want.

Second, Lower Your Big Monthly Bills

Consider refinancing your mortgage and car loans — typically, the biggest bills a family pays each month — at lower-interest rates. This will increase the amount of money you’ll be able to save.

6. As you gradually pay off your consumer debt, your credit score will rise.

This will make you eligible for lower interest rates on your mortgage. (Check your credit score at no cost through annualcreditreport.com.)

Talk with your mortgage broker regularly to see whether interest rates have declined. Or search for lower rates online. Bankrate.com updates mortgage rates weekly based on data from banks across the country.

7. Pay off your car loan with a home equity line of credit.

Typically, home equity loans carry lower interest rates than car loans. The interest you pay each month is tax-deductible. Search for the lowest rates at bankrate.com and interest.com.

Third, Spend Less

After digging yourself out of debt, here are strategies that will keep you in the black.

8. Don’t place yourself in situations where you’re likely to make impulse purchases.

For example, don’t wander through Borders on your lunch hour if you can’t resist magazines or CDs. If you receive a lot of catalogs at home, cancel them through catalogchoice.org.

9. Don’t shop recreationally.

Instead of “going to the mall” for fun, make a list of the items that you need and go only to the stores where you can find a good price on them.

If window-shopping tempts you to spend, don’t go to movie theaters or restaurants in shopping malls.

10. Don’t shop online.

Make it more difficult to log on to shopping sites by not bookmarking them. Think of the Internet as a source of information, not a source of shopping entertainment.

11. Put yourself on a spending allowance.

Calculate the amount that you can afford to spend each week on discretionary expenses, such as buying lunch, clothing, books, coffee, dinners out, movies, and so on. Go to the ATM on Friday; withdraw that amount, and don’t take out any more cash (or use a charge card) during the week.

If you spend your money over the weekend, pack your lunches and don’t go out to eat or shop until the following Friday.

12. Turn frugality into a game.

See how much you can save by bringing lunch from home. Form a thrift group at your church, to share coupons and inexpensive recipes, and to exchange ideas about free activities in your community. Substitute a healthy activity — like a swim or walk — for a shopping spree.

Finally, Start Saving

Put money away while paying off the balance on your zero-percent or low-interest rate credit card. Figure out how much you’re saving from using this credit card, refinancing big-ticket bills, and sticking to a budget.

Designate this amount for savings. Have your bank deposit that amount each week (studies show that people are more likely to save if the money is deposited automatically) into two savings accounts:

13. An emergency fund, invested in a money market account.

To find the highest-yielding rates, log on to bankrate.com or fidelity.com. You will have to fill out an application online, authorizing the money market company to transfer funds from your bank each month.

14. A retirement fund, invested in stocks, bonds, mutual funds, or cash.

Log on to fidelity.com or vanguard.com to explore mutual-fund options. If you want to invest in individual stocks or bonds, log on to schwab.com or tdameritrade.com to set up a brokerage account.

Again, you’ll fill out an application online, and the company will take it from there, making sure that your bank transfers the funds electronically every pay period.

Even easier, if your company has a 401(k) plan, talk with the benefits department about having a portion of each paycheck deposited into the plan. Many employers will match your savings (to a certain percentage).

Remember: Don’t tell yourself that saving just a little won’t make a difference. You’re developing a habit — the longer you save something each month, the more likely you will be to continue doing it. Increase your contributions to these accounts as you pay down your credit card debt and curb your spending habits.

Congratulations! You are, finally, building wealth for your future.

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