Consumer debt mistakes

A Tax-Time Question: Who's in Control of Your Spending?

by Eric Tyson

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If you have little left to show for your annual income figure on your W2 or 1099, here are three tips for taking control of your financial destiny.

We're more than a month into the new year and you know what that means: your wake-up call has arrived in the mail. That's right. Your W2 or 1099 is here, and is probably already gracing the "tax stack" piling up on your kitchen counter. If you're like most of us, you tear off the perforated edge, pull out the center page, and gape at the amount you made in last year. Where did it all go? you wonder. It's not a fortune, but it's enough that I should have a nice little chunk set aside in savings or investments-rather than a hefty new car payment and an escalating credit card balance. Don't feel too discouraged. This is the perfect time of year to take stock of your spending habits and make a change in your life. If you want to atone for last year's financial sins and make a fresh start, you must change the way you think about spending. Here are a few suggestions:

Mental Mistake #1: Thinking consumer debt is the American way. Everyone does it.

The Remedy: Realizing you don't have to be like "everyone."

No wonder racking up credit card debt seems "normal" to most Americans. Even our government spends money it doesn't have. But we all know credit cards, with their astronomical interest rates, bleed us dry, prevent us from building a nest egg, and lead to untold stress and anxiety. If that's normal, I'd rather be abnormal. It's like the hypothetical question Mom always posed, "If everyone else is jumping off the Empire State Building, does that mean you should do it?" First of all, not everyone lives with debt. But even if they did, if the herd is headed off the cliff, you'd be a fool to go along.

Mental Mistake #2: Assuming you have to drive a shiny new car.

The Remedy: Imagining how good it will feel not to shell out that $400 each month.

Not only do I think you should keep your old, paid-for car, but also I don't believe in financing automobiles. At all. I may be one of the few people in America who finds it financially unwise to have a monthly car payment. I truly believe that people should save up enough money to pay cash for a car. If all you can afford is a used car, so be it. Is what you drive really so important? Wouldn't that monthly payment be better spent saving for retirement, building up a college fund for the kids, or even taking a memorable family vacation?

Mental Mistake #3: Believing money equates to happiness.

The Remedy: Trying on a more modest lifestyle for a year. (Seeing really is believing.)

If you are working yourself to death to pay for the large home, that gas-guzzling SUV, and the giant-screened TV, on some level you probably think they're necessary ingredients for happiness. But are you happy living this way? Really? I suggest that you dramatically downsize the spending for a year. I promise that once you try living with an older fuel-efficient car, cooking instead of dining out five days a week, and paying with cash, you'll realize that you're just as happy as you were in your free-spending old life. In fact, you'll be happier. Less money anxiety and more time spent at home with your family will make the "sacrifices" seem inconsequential.

Healthy financial habits start with making smart, conscious, reasoned-out decisions instead of letting outside forces dictate how you're going to live. If you're spending to impress your neighbors, your coworkers, or your clients, you're doing it for the wrong reasons. They won't be the ones working 'til they're 80 because you spent all your retirement money. You will. Make a big change now. Next year when you open those tax forms, you can feel good about what you earned and where it went.

True or False

Debt from my past is preventing me from saving for my future! Tell us: Yes, debt is hindering my ability to save! or No, debt is not a problem but I am trying to get ahead financially!

Eric Tyson is one of the nation's best-selling personal finance book authors and has penned five national best sellers. His Personal Finance For Dummies (Wiley) won the Benjamin Franklin Award for the Best Business Book of the Year. He is also the author of Investing For Dummies and co-author of Home Buying For Dummies and Real Estate Investing For Dummies, among other titles.

Let's Get Real About Money!, also by Eric Tyson (FT Press, ISBN: 0132341611, $19.99) (is available at bookstores nationwide and all major online booksellers.

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