Posts Tagged ‘discretionary spending’

Blog Carnivals in Review

Friday, April 10th, 2009

Recent blog carnivals have covered a wide breadth of topics on debt and other personal finance topics. Some of the more interesting this week include:

Money Hacks Carnival

Solid Planning Tips and Tricks Carnival

Carnival of Twenty-Something Finances

Festival of Frugality

Carnival of Personal Development

Carnival of Wealth, Money, and Life

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Posted in Credit Card, Credit cards, Debt Management, DebtGoal, Goal, Lending Industy, Marriage, Paying Down Debt, Press, Saving, Spending, credit report, credit score, mortgage, stress | View Comments

Quickfire Challenge: Debt Problems versus Debt Solutions

Friday, March 27th, 2009

Many bloggers on personal finance attack a specific debt issue in an article. But consumers are struggling with debt problems at most twists and turns because reduced and eliminated incomes, ballooning debt at high interest rates, and depleted savings impact every decision in one’s life. Here is some quickfire advice on areas of debt problems, with debt solutions – solid advice for straightening out one’s finances and getting past the initial hurdle of inaction and indecisiveness.

Housing

Debt Problems: Making one’s mortgage payments, deciding when to foreclose or do a short sale, deciding whether or not to rent or buy a home, how to handle housing costs in a budget, and whether to “invest” in real estate.

Debt Solutions: Do not be afraid of a short sale or foreclosure. Depending on your financial situation, this can be the best course of action. Also, do not be afraid to delay purchasing a home. Is it much better to make sure you have income security than to get into an obligation in which you must swing a hefty monthly payment. Set up a budget and look at it honestly: is it feasible to comfortably swing the mortgage payments were you to choose a 15-year mortgage? If not, do not even consider a 30-year option. Finally, the DebtGoal philosophy is clear: treat housing as an expense, not as an investment.

Getting Finances in Order

Debt Problems: How to jumpstart getting organized, setting goals, and tracking information.

Debt Solutions: simplifying for success, clutter control, setting SMART goals, and using a debt tracking form are the “quickfire” remedies for inaction. Get up and get started; it takes minutes to get this going.

Budgeting

Debt Problem: How to get spending under control.

Debt Solution: Set up a quick budget in minutes and use it as a hard boundary for spending. Understand the difference between discretionary and non-discretionary expenses. Trim away your monthly discretionary costs, and focus on funding the basic living expenses of food, housing, and transportation. Even with the non-discretionary items, choose the frugal option. Use a no-frills vehicle, grocery shop instead of frequenting restaurants, and rent a room instead of a full apartment.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Cutting Back on Discretionary Spending

Sunday, March 1st, 2009

Each of us makes choices every day about how we allocate our money and most of us chose to spend a portion on discretionary categories like morning coffee or going to a movie. The US Bureau of Labor Statistics estimates that we spend approximately 17% of our after-tax income on such purchases.

Based on government statistics, here how discretionary spending breaks out by category for various income bands. You can use this information to benchmark yourself against others in your income bracket and identify areas where you may be able to reduce expenses.

Average Household Lowest 20% Second 20% Third 20% Fourth 20% Highest 20%
Number of consumer units (in thousands) 118,843 23,738 23,773 23,765 23,770 23,796
Annual income before taxes 60,533 9,974 26,657 44,933 70,975 149,963
Annual income after taxes 58,101 9,969 26,346 43,799 68,497 141,738
Discretionary Spending Categories
Food away from home 2,694 1,055 1,660 2,404 3,292 5,058
Alcoholic beverages 497 213 294 474 534 971
Apparel and services 1,874 845 1,193 1,680 2,101 3,548
Entertainment 2,376 879 1,271 1,898 2,720 5,105
Personal care products and services 585 262 385 513 713 1,050
Reading 117 51 73 98 131 232
Education 888 505 295 477 879 2,281
Tobacco products and smoking supplies 327 266 345 367 374 282
Miscellaneous 846 454 510 674 939 1,652
Total 10,204 4,530 6,026 8,585 11,683 20,179
Percent of After-Tax Income
Food away from home 4.6% 10.6% 6.3% 5.5% 4.8% 3.6%
Alcoholic beverages 0.9% 2.1% 1.1% 1.1% 0.8% 0.7%
Apparel and services 3.2% 8.5% 4.5% 3.8% 3.1% 2.5%
Entertainment 4.1% 8.8% 4.8% 4.3% 4.0% 3.6%
Personal care products and services 1.0% 2.6% 1.5% 1.2% 1.0% 0.7%
Reading 0.2% 0.5% 0.3% 0.2% 0.2% 0.2%
Education 1.5% 5.1% 1.1% 1.1% 1.3% 1.6%
Tobacco products and smoking supplies 0.6% 2.7% 1.3% 0.8% 0.5% 0.2%
Miscellaneous 1.5% 4.6% 1.9% 1.5% 1.4% 1.2%
Total 17.6% 45.4% 22.9% 19.6% 17.1% 14.2%

Source: 2006 BLS Consumer Expenditure Survey

Since this is a large portion of spending, it’s easy for personal finance authors to recommend this as an easy category to cut, but it’s not always so easy. For some people, discretionary spending is so tight there’s not much to cut. And for most of us, discretionary spending is closely associated with the activities that add color and fun to our lives.

We recommend that you take a realistic approach to your discretionary spending. Rather than trying to eliminate all of it, try to make focus on the activities that truly matter to you while reducing those that don’t. For example, if you enjoy movies with your spouse, can you eat at home before the movie rather than doing movie and dinner? Can you reduce fast food convenience dining while keeping date night at a nicer restaurant? The trick is not to eliminate all spending, but to make your spending count.

The 2006 Consumer Expenditure Survey estimates that the median household with about $45K in pre-tax income spends about $8,500 per year in discretionary categories. Reducing this by 20-30% can free up $150-200 per month to apply to debt.

Actions:

  1. Identify five categories of discretionary spending that you feel you could reduce. Here are a few to consider.
    1. Entertainment (movies, concerts, magazine subscriptions, books, video rental)
    2. Clothing and apparel
    3. Dining (convenience meals, work lunch, morning coffee)
    4. Other (alcohol, tobacco, etc.)
    5. Personal case (hair styling, manicure, etc.)
  2. Estimate your current monthly spending in these categories
  3. Determine a realistic reduction for these categories and calculate a monthly total that you can save. Keep this realistic-you won’t be able to keep a promise to reduce all discretionary spending, so start small with some goals that you can achieve.
  4. Take a few minutes to write out your goal and think about how you will monitor it to make sure that you’re staying with your plan. Post your goal in a place where it will remind and motivate you.

When you have identified an amount that you feel comfortable that you can save each month, increase to your DebtGoal Monthly Commitment that you will apply to debt.

DebtGoal.com can help you create and track to a personal debt reduction plan.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Posted in Debt Management, DebtGoal, Paying Down Debt, Spending | View Comments

Credit-Score Pitfalls of the Wealthy

Tuesday, February 17th, 2009

An interesting article tackles an uncommon topic: debt and the affluent. Many of the headlines over the last few months have mentioned how discretionary spending by the well-off has tapered off in the midst of the economic downturn. But the wealthy are also being impacted by bread-and-butter financial situations like missed or late credit card payments, excessive borrowing, and a general lack of information on topics like credit scores. Here’s some of the important points made:

  • Those in higher income brackets can remain uninformed of exactly how credit works
  • Those who have habitually shunned the usage of credit cards or taking on debt in any form can suffer a low credit score, in spite of what most would consider responsible financial behavior
  • “income and savings aren’t factors in determining a credit score“
  • Higher credit scores are needed by individuals at all income levels to qualify for the most competitive financing these days
From a debt standpoint, those that struggle with debt – irrespective of being wealthy or of modest means – must grapple with the impact of their credit score on efforts to pay down and eliminate any outstanding debt they might have.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Posted in Credit Card, Debt Management, Paying Down Debt | View Comments