No expense is too small to record

"Getting a loan from a family member or a friend can be a good way to ruin a great relationship. If you do ask someone you know for a loan, help protect your relationship by working out all of the terms of the loan and formalising them in writing, just like you would if you were borrowing from a bank. ..... It can be hard for many people to admit that they are having financial trouble. However, if you are having problems keeping up with your mortgage, it's important that you swallow your pride and face facts," quotes Mr D Murali of Business Line, in his review of Howard S. Dvorkin's Credit Hell: How to Dig out of Debt, from Wiley (www.wiley.com).

- Dilip.
______________________________

Source: Business Line, Dec 18, 2005.

D. Murali

CHECK if any of the following statements apply to you: "More than 15 per cent of your take-monthly home pay goes toward your debts. You can only afford to pay the minimum due on your credit cards each month... You have little or nothing in savings."

And: "Debt collectors are calling you about your debts. Some of your creditors are threatening you with lawsuits. You and your spouse (or partner) are fighting over money. You are constantly worried about money."

If yes, look for help in Howard S. Dvorkin's Credit Hell: How to Dig out of Debt, from Wiley (www.wiley.com). But the solution involves "hard work, self-discipline and some sacrifice." And Chapter 1, titled `Assessing the State of your Finances', reminds you not to be so naïve as to expect things to fall in place fast.

The author is a CPA and a certified credit counsellor. And his style is direct and down-to-earth. For instance, he writes: "It can be hard for many people to admit that they are having financial trouble. However, if you are having problems keeping up with your mortgage, it's important that you swallow your pride and face facts."

Work first on the essential money management tool — a budget. Before that, track your spending for a month, Dvorkin advises. "No expense is too small to record in your notebook because small expenses will eventually add up to big ones." The notebook should be `small enough to fit in your purse or pocket'.

A template given in the book helps classify expenses as fixed, variable and periodic. Include in the worksheet "any debt payments you should be making but may not be able to make because of lack of money." Where exact numbers are elusive, let estimations follow the maxim, `understate income, and overstate expenses'.

Share the budget worksheet with the family, says the author. "Involving your children in the process is a good way to teach them to be responsible money managers as adults."

When you can't make ends meet, the author suggests the selling off of non-essential assets such as extra vehicles, furniture and so on, to fund the repayment of the highest interest-bearing debts. "If you can't stop spending even though you know you should, you may have an emotional problem with money. Debtors Anonymous (www.debtorsanonymous.org) can help."

A pawnshop loan is an expensive source of money, cautions Dvorkin. "Not only will you have to leave the item you pawn at the pawnshop but also the pawnbroker will only lend you 50 per cent to 60 per cent, or even less, of the item's resale value." The rate of interest may work out to 120 to 240 per cent p.a.! Also, never write a cheque when you know you don't have the funds to cover it.

Among the suggestions to reduce spending is this practical one: "Get rid of your cell phone if you rarely use it or if you could get along without it. Having a cell phone is convenient, but in most cases, that's exactly what it is — a convenience, not a necessity." Another suggestion reads: "Don't shop for the fun of it or to pass the time away. Purchase only what you need. Spending money should not be a hobby!"

Try to purchase all the groceries you need for the week by making just one trip to the store, counsels Dvorkin. "The more trips you make, the more you are apt to spend." Buying in bulk is okay, but "be careful about purchasing perishable items that may go bad before you have a chance to consume them."

You don't need life insurance if you have no dependents, advises the author. Pay attention, however, to `health insurance', he urges; because it is risky, "both financially and health-wise" to be without one. Do you know that medical bills account for a big chunk of bankruptcies?

One of the money-saving ideas is the exhortation to get rid of vices. "For example, if you are a smoker or drink too much, stop. You will save money and benefit your health at the same time." There can be no two opinions on that.

Negotiate with your creditors and restructure the debt repayment, suggests Dvorkin. "Don't agree to pay more than you can afford. If you do and then you can't make your payments, your creditors may not be willing to negotiate with you again." Consolidate your debts, so that you have one large debt rather than multiple debts.

"Getting a loan from a family member or a friend can be a good way to ruin a great relationship," alerts the author. "If you do ask someone you know for a loan, help protect your relationship by working out all of the terms of the loan and formalising them in writing, just like you would if you were borrowing from a bank."

Lifeboat of a read to save yourself from sinking!

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