Part of setting your budget is determining how much money you have and where it should go. And with this comes the important task of figuring out what you need verses what you want. Too many times people will set their bars really high to allow for those “extra” things that they think they need. The may put a little bit more in their food budget for those convenient snacks, or maybe a little more in the entertainment budget for those extra few drinks. But for those serious about getting out of debt, there is a lesson to be learned here. The more money you save on your wants, the more money you have to pay off your debts, and the sooner you will be debt-free.

Still trying to determine the difference? Check out what Sarah Winfrey had to say over at Wise Bread:

“But Mo-om, I want it!” How many times have you heard that in the grocery store, or the toy store, or anywhere else, for that matter? Probably more than you can count. And what do you think when you hear it? That poor parent? Or, thank God that’s not me anymore! Or, What is wrong with that child? Most of us go on our way, relieved for some reason. It’s not our kid, it’s not us, and we don’t have to deal with it.

I must admit that I am plagued with scenario every time I pass the toy section in the store with my kids. They wine and complain that they want a toy and will try to give me a valid reason for it. The answer remains the same - No. But then again, maybe I should sit back and think about my purchases, and wonder if I do the same thing. Do I try to give myself a valid reason for purchasing something just because I see it on the shelf? Keep reading:

The truth is that, as adults, there are times when we keep ourselves from throwing these sorts of tantrums by buying something we don’t need. We see an item, feel the same desperate need that child felt, and assuage our own feelings by buying the item. We have the power to do that for ourselves as adults. But these are the purchase we often feel guilty about, and one of the main ways to get rid of the guilt is to find a way to classify that purchase as something we do need. Actually, we can do this any time we regret a purchase.

So it’s time for all of us (and I include myself in this) to grow up, time to stop looking like adults on the outside but acting like children on the inside. To do this, we must learn to distinguish between what we need, what we need in certain conditions, and what we want.

Find out how to group your needs and your wants accordingly - read more of her blog here.

Also, you can share your ups and downs, ins and outs of budgeting with other users in the group It’s Time To Budget by joining in on our conversation here.

If you’re feeling stuck in your current financial situation but don’t understand why, the answer may lie in changing an unconscious belief or habit that doesn’t jive with your larger goals.  Check out some common thoughts/habits that can hold people back financially.

1)  Money isn’t important.  
Nobody wants to be a slave to money, but it’s almost impossible to live free of it.  Money doesn’t guarantee happiness but as the currency for surviving in this world, it’s pretty darn important.
Your subconscious mind is very powerful.  If money isn’t important - why bother going to work, getting out of debt, or building a nest egg?  Talk about mixed messages.

2)  I deserve nice things. 
What exactly are ‘nice things’?  My guess is most people want universally nice things like money in the bank, a home of their own, and free time to spend with loved ones.  Yet we easily settle for the temporary satisfaction of buying the stuff we want right now.  Yes, you deserve nice things.  Get clear on what that means for you then set your goals.   Geezeo lets you track and share your progress.          

 3)  I’ll never get out of debt. 
If this is your mantra don’t be surprised when (surprise!) your debt never shrinks.  The subconscious gets hooked by ‘never’ and its job is to help you cope, not find solutions.  Consciously replace this thought with something positive that requires action like  “I’ll be debt free in two years”.  Get ready for awesome results.  
     
4)  Closing doors before they’re open.   
This is a biggie when it comes to making career changes or taking risks so your money can grow.  Develop the habit of seeing opportunity rather than problems.  This one shift in thinking allows for so much creativity in improving your financial life.
Seemingly harmless thoughts like, “That won’t work”,  “They won’t let me do that” or  “I don’t know how”, send the message that it’s okay to give up before trying.

The road to financial freedom is hard enough, why stand in your own way?   Do some money soul searching on the Confessions page.

The three little pigs built their homes to withstand the Big Bad Wolf. One built a home out of straw, another out of sticks, and the last little piggie chose bricks. From this perspective, it’s easy to choose a house.

As adults we know home ownership — and its funding — is a lot more complicated. Take for instance the current mortgage crisis. This week Greenspan called a bottom to the housing market, and The Wall Street Journal ran a poll:

Do you agree with Alan Greenspan’s forecast for house prices to stabilize in the first half of 2009?

You can weigh in yourself at The Big Picture blog.

Pigs have a bad reputation for being stupid or greedy. In reality, science shows that pigs are just as intelligent and social as the family dog. Unfortunately, descriptions like “greedy pigs” creep into discussion about who is at fault when discussing the mortgage crisis.

The short answer is that everyone is partially at fault — our culture for being more accepting of debt, our banking and government systems for relaxing rules, and our media for encouraging too many of us to take brick houses and turn them into straw.

An in-depth series in The New York Times explores the role of advertising in the mortgage crisis. Specifically, how advertisers (industry self-described “ad-holes”) literally re-wrote the language of credit to make borrowing against your primary asset more palatable. And, coupled that with images of the “good life”.

And is this debt crisis situation as “American as apple pie”? Unfortunately, no. Here’s a British take on the recent housing troubles:

A crumbling sign on the first house boasts it is “For Rent” but, given that it doesn’t even have a door, it seems unlikely the owner, if there is one, will be getting too many inquiries.

Read more.

And another explores how we Americans are exporting our credit card addiction:

“People who would kill their sisters or daughters for bringing shame on the family would do anything to avoid being labeled a debtor,” said Nazim Kaya, the president of Consumers Union, an advocacy group that helps those who fall into debt.

But in a cultural shift that has swept aside centuries of tradition, credit cards have become commonplace here. Only three decades ago, Turkey had fewer than 10,000 cards; today it has more than 38 million.”

Read more.

So is your “financial house” made of straw, sticks or bricks?

A recession is never easy for anyone. Trying to make ends meet while still saving for retirement can be extremely frustrating. The key is to try and keep saving regardless of how much you would like that extra cash now instead of later.

It is possible that by the time people retire they may have seen around 5 or more downturns in the market leading to a recession. People must take the right steps to ensure that they can make it through these recessions while still saving for retirement.

Newsweek suggests 3 things to increase your savings: (1) working longer, (2) keep contributing to your retirement savings, and (3) delaying your social security. If you do these 3 things, it can increase the purchasing power of someone around 62 years of age by 30%.

However, sometimes people don’t have a choice and have to retire earlier than they would have liked. If this is the case for you, try to find some part time work to keep things going. Another way to bring in some short-term cash during a recession could be to go through all of your belongings and sell some things at a garage sale. Although this may not generate a ton of cash, it can be helpful when times get tough.

Whether you are young or almost at retirement age, planning is still a must. There are things that you should and should not do during a recession that will help you out in the long-run.

DON’T SPEND MONEY YOU DON’T HAVE
Don’t spend before you actually get the money. Spending before the money is in your pocket is not a good way to do things. Putting things on your credit card and overspending can put you in a lot of debt that you are unable to get yourself out of. This will also hurt your credit score which can affect you in the future.

DON’T BE LATE WITH PAYMENTS
Being late with any type of payments (student loans, credit cards, etc.) will also affect your credit score and hurt you.

KEEP SAVING
This is huge even if it might be hard to do sometimes. Even putting a small amount of your pay check towards your 401(K) can be extremely beneficial in the long-run. Not only does this help you save on the money that gets taxed, but you are also saving towards your retirement. However, try not to borrow money from your 401(K) until you retire.

According to an article on MainStreet.com, if you borrowed $5,000, you’ll have to repay $1,000 per year in four $250 payments. And further, if you don’t pay all the money back it will be considered taxable income and you will also pay a 10% penalty fee. This is something that you really don’t want to have to deal with!

Although times are tough and groceries and gas are still rather expensive, the key is to stick it out. Everyone is in your shoes and struggling just as much. Some don’t have jobs and are searching at a time when unemployment is at its highest in the past 4 years.

Just remember, try to keep saving! It may be hard to see the benefit in the short-run, but in the long-run you will benefit from your savings in your retirement.

Picture: Michael Connors

Related Links:
Be Prepared! Start an Emergency Fund Today
Three Tips to Recession-Proof Your Budget
Retiree Health Coverage On the Decline

Asking these questions? Here are 10 red flags that you have too much debt.

1. Savings? What savings? — You don’t have any.

2. What’s the lowest I can pay each month? — You only pay the minimum. Or worse, you can barely pay the minimum…

3. Why worry? This little purchase won’t make a difference. — You’re still using your credit cards even as you struggle to pay them.

4. What do you mean I’m declined? — You have at least one card that is maxed out, or very close to being maxed out.

5. How much is the late fee? — You are paying late fees on your credit cards, bills, or other expenses because you’re stretched too thin.

6. Why think about the Grand Total? It will ruin my day. — You do not know how much debt you owe. Or, you are scared to find out.

7. Can I get a cash advance? — You have seriously considered, or are currently using, credit card cash advances or payday cash advances. Even if you know the fees can be 391% APR or greater.

8. Can I get that bounce check fee withdrawn? — Chances are “no”, because you’ve bounced too many checks and/or regularly overdraw your checking account.

9. What do you mean I’ve been denied credit? — You’ve been turned down for a credit card, an apartment, or even a job based on your spotty credit score.

10. Why do you think I have I problem? I don’t! — You lie to family or friends about your spending habits or debt… going as far as hiding purchases or using shopping as “retail therapy”.

Sound familiar? You’re not alone. I am one of many people who have asked all of these questions at one point or another. So, the question becomes, what can you do?

You cannot gain control of your spending habits and escalating debt without asking yourself some serious questions. Namely: why is my behavior so counter to what I say I want? (Often, you just want “financial stability” — though, hey, “financial security” sounds appealing, too).

It boils down to figuring out WHY you’re spending too much and then mapping out HOW you’re going to solve your problem. Chronic debt can only be solved by changing your behavior.

Changing ingrained behaviors can be a struggle. Make sure you arm yourself with the willingness and desire to change as well as the support from others who have walked the same path. You can find support for chronic overspending by connecting with others here at Geezeo, Debtor’s Anonymous, and/or a legitimate branch of Consumer Credit Counseling in your area.

Take heed of these warning flags, and take action so that these questions will become “things I used to say… a long time ago.”

Most of us will get stressed out about money sometime in our lives.

Some common stresses surrounding money include:

Left unchecked, stress about money can have devastating effects. What to do?

First, identify the main cause of your money stress. Debt is one of the most common stresses. Sometimes stress is due to one specific issue (e.g., credit cards), and sometimes it stems from a combination (e.g., divorce and job loss). Regardless if you have one or many money stresses, write them down. Do not underestimate this simple step. Seeing your concerns listed out allows you to look at them head on. This is good. Because you’ll be mowing them down and “taking care of business”!

Second, decide that you are capable of solving your money stress. Yes, you must consciously decide you can do it. Then, you must make the personal commitment to do so. This is the step that separates those that give up from those who solve problems. Be a person dedicated to solving problems.

Third, make a new list. This list will have two columns. On one side write everything you can think of to help solve your problem and therefore reduce your money stress. Do not edit. Just write out every possible, even far-fetched idea.

Using the debt example: brainstorm the ways you can simultaneously make more money and reduce your expenses.

The other side of the column you list everything you “don’t know”. You might ask, “how can I write down the things I don’t know?”. Here’s an example using debt as a major stress-inducer:

What is my interest rate?
What is my APR?
Can I negotiate a lower rate?
Can I consolidate this debt?
Is this debt tax-deductible?
Where can I learn about managing my debt?
Whom should I ask for advice?
How can I reduce this debt by $XX a week?
What opportunities am I not seeing?

And then: walk away for a few days. Yep, I said walk away. Not because you’re walking away from your money stress. You’re just allowing the questions you’ve raised to settle in your mind. This is an important step, too.

Doing all of these steps will help you:

It is easy to shut down and think nothing will help your money stresses. In fact, you are quite capable of solving whatever stress exists so long as you commit to the process. Identify what you can do and what areas you need to learn more about so you can solve your problem(s) and reduce your stress.

You can do it!

How to Tell if It’s Good Debt or Bad
By Peter McDougall | MainStreet.com

The economy is struggling, and consumer debt is at an all-time high. Total consumer credit reached nearly $2.6 trillion in May, according to preliminary numbers released earlier this month by the Federal Reserve Board –and that sum excludes loans secured by real estate (e.g. mortgages and home equity loans).

In some cases, consumers are carrying so much debt that they can barely cover their interest charges, much less pay off their balances. This is especially true of credit card debt, where some interest rates are over 20%.

If you have more debt than you can handle — and potentially skyrocketing rates on your adjustable rate mortgage or credit cards — you need a plan. That means figuring out exactly how much you owe, and how best to pay off your bills.

Organizations such as the Consumer Credit Counseling Service of Greater Atlanta (CCCS) can help you set priorities for your debts. And your first priority should be to protect the basics: your sources of shelter and income.

“We encourage consumers to see that their first priority is their mortgage payment or rent,” says Dick Reed, regional counseling manager at CCCS of Greater Atlanta. “Do they need their car to get to work? Then another priority is to protect your car, or your access to whatever transportation you need, to get to work.” After all, if you can’t work, paying down your debt gets a lot harder.

You should also be smart about how you pay down your debt, especially in the case of credit card balances. Reed explains that many consumers take a shotgun approach to credit card debt, where they spread their payments too thin across their various balances. Instead, he recommends paying off the debt with the smallest balance first, while making minimum payments on everything else. Once you’ve paid off one bill, then put that payment toward the bill with the next smallest balance, and so on.

A debt counselor can help you identify your most important debts, and figure out the most efficient way to pay back the rest of your creditors. What’s more, a debt counselor can potentially make your debt more affordable by reducing the interest charges from some of your creditors.

Many credit-counseling services have agreements with unsecured creditors (e.g. credit card companies) that allow them to offer lower interest rates to consumers who are actively seeking help. “If consumers are on debt management plans, they can get their rates to drop from upwards of 21% to 24% down to 7% or 8%,” says Reed. “That can help the consumer get his or her cards paid off a lot quicker.”

Some creditors even offer hardship rates that can drop the interest charges even lower. Basically, if creditors can get their payments at a lower rate, Reed says, they’ll often consider that better than getting nothing.

Finally, remember that while debt and credit counselors can make suggestions, it is up to you, as a consumer, to make sure you are spending your money wisely.

Related:

* What To Do If GM Cut Your Insurance
* Four Against-the-Grain Ways to Save Money

In this day and age, it is easy to work yourself into debt. Saving seems to be difficult when gas and other prices are on the rise. Regardless of how you got into debt, if you are trying to get yourself out you need to make sure you are trusting in the right people.

The best way to organize things and work through your bad credit is to try and do it yourself. But for several reasons, this doesn’t always work for everyone. A lack of complete understanding as where to start and sometimes a lack of time can both contribute.

The next question then is who to trust?

If you are looking to take out a loan or anything similar, you first want to check out your credit report. According to an article from our partners at TheStreet.com, about 75% of all credit reports contain some type of error. These errors (either small or large) could prevent you from getting the loan you need. Its like those commercials for freecreditreport.com where they don’t check their credit report first and end up in some type of bad/crazy situation!! Make sure to check your credit report in advance so this doesn’t happen to you! Even if you think your report should be pretty close to perfect, it is better to be safe than sorry (as they always say).

Good Guys
Be Careful Who Fixes Your Credit on TheStreet.com helps you sort through the “good guys” vs. the “bad guy” in the credit world. The Credit Repair Organizations (CROs) will do much of the “dirty” work for you such as contacting the credit bureau (but all of this can also be done by yourself).

In the article, Peter McDougall states that a legitimate CRO should provide the following items in any contract you might sign:

Payment terms and services, including their total cost

A detailed description of all of the services that will be performed

A timeline for the performance of these services

Any guarantee the company or organization offers

The company’s name and business address (preferably something more than a post office box)

Make sure that you consider all of your options and understand the conditions before signing any type of contract.

Bad Guys
It isn’t always hard to pick out the bad CROs (or those individuals who are simply trying to scam you out of your money). Make sure you aren’t doing anything illegal. Also, know what you can do on your own for free…you don’t want to get charged for something that you can do by yourself without a fee. Understanding what the legitimate CROs can do for you should be able to help you eliminate those who are doing things illegally.

As always, do your research! It is good to ask for help if you think you need it, but make sure that you are asking the right people!

Having bad credit can be frustrating enough…in the end, fixing it should be a huge relief and weight off your shoulders. Make sure to use all the Geezeo features such as your budget and personal goals to organize your finances and not get yourself into further trouble!

Photo: Kevin Rosseel

Related Articles:
Vanishing Money: Consumer Debt Attacks
4 Tips To Control Your Mortgage in Topsy-Turvy Times
Is Your Cash Safe At the Bank?

“The Debt Trap” is a New York Times series well worth reading and/or watching.

Sadly, many of these stories feature an unexpected event that, coupled with overspending or poor planning, set off a downward spiral.

Let’s not pass judgment on the people profiled or people in similar situations. After all, Americans as a whole share many of their viewpoints and actions — including me at times.

So, I thought I’d try to put together a list of things to do before, during, and after finding yourself in a debt trap. What would you add or remove?

BEFORE GETTING IN DEBT

Spend less than you earn by re-evaluating wants vs. needs
Keep current on all credit cards, never spending more than you can reasonably pay off in one month
Never use credit for short-term survival
Build an emergency fund
Insure your ability to earn a living with disability insurance
Insure everything else: car, home, your health
Be politically active and aware

WHILE IN DEBT

Take all reasonable steps to eliminate and/or reduce debt — a popular strategy is Dave Ramsey’s “Debt Snowball”: rolling each debt down based on highest interest rate or lowest balance (whichever motivates you more)
Sell anything that you don’t use or need
Carefully remove as many costs as possible without sacrificing health, safety, or insurance
Find additional sources of income, even if by doing so it seems “beneath” you
Take a good look at your behavior and determine what needs to change
Be politically active and aware

AFTER DEBT

Work to keep and improve your good financial habits
Realize you can help others from your experience
Monitor your behavior so you don’t slip into old patterns
Educate yourself on money management and make it a goal to get better
Surround yourself with people who will keep you focused on good financial behavior
Be politically active and aware

You can find people in all of these situations here at Geezeo. Join a group or discussion and know that you are not alone facing — and beating — a debt trap.

Head over to The New York Times to read an in-depth article on debt burden in America.

There are two articles and several interactive graphics. Here’s one. How do you compare?

In the article, “Given a Shovel, Americans Dig Deeper into Debt”, they profile one woman who through a series of overspending and a health crisis found herself in $280,000 worth of debt. (Similarly burdened by high levels of debt, see our profile of DebtKid, a young man struggling with nearly $300,000K.)

“Oh, I definitely have regrets,” Ms. McLeod said. “I regret not dealing with my emotions instead of just shopping. And I regret involving my son in all this because that has affected him and his finances and his self-esteem.”

Full articles and interactive graphics here.