Personal Finances

Now, it's time to tackle step 2 of our recommended personal-finances miniplan: do whatever you can to bring down your monthly bills. As we said, many people may find this step easier than step 1 - cutting up your credit cards and starting to live on a cash-only basis.

If you want to take a gradual approach to step 2, one financial planner suggests that you perform the following "exercises" for one week:Financial planner Elissa Buie helped to develop USA TODAY's Financial Diet.

• Keep a written record of everything you spend and total it at week's end.
• Keep all your ATM receipts and count up the fees.
• Take $100 out of the bank and don't spend a penny more.
• Avoid gourmet coffee shops.

Among other things, you'll probably be surprised at how much of your money can become somebody else's money on a week-by-week basis. If, for example, you spend $3 every day for one cup of coffee at a coffee shop, you're laying out nearly $1,100 a year. If you use your ATM card at a bank other than your own, you'll probably be charged a fee that can be as high as $3. The average person pays more than $60 a year in ATM fees, and if you withdraw cash from an ATM twice a week, you could be racking up $300 in annual fees. As for your ATM receipts, they'll tell you whether, on top of the fee that you're charged by that other bank's ATM, your own bank is also tacking on a surcharge.

If this little exercise proves enlightening - or if, on the other hand, it apparently fails to highlight any potential pitfalls in your spending habits - you might devote the next week to another exercise:

• Put all your credit cards in a drawer and get by on cash.
• Take your lunch to work.
• Buy nothing but groceries and gasoline.
• Use coupons whenever you go to the grocery store (but don't buy anything just because you happen to have a coupon).

The obvious question that you need to ask yourself at the end of week 2 is, "how much did I save?" An equally interesting question, however, is, "what can I do without?" One survey asked five thousand financial planners to name the two expenses that most consumers should find easiest to cut back on. Figure 14.2 "Reducible Expenses" shows the results.

Figure 14.2 Reducible Expenses

You may or may not be among the American consumers who buy thirty-five million cans of Bud Light each and every day, or 150,000 pounds of Starbucks coffee, or 2.4 million Burger King hamburgers, or 628 Toyota Camrys. Yours may not be one of the 70 percent of U.S. households with an unopened consumer-electronics product lying around. And you may or may not be ready to make some major adjustments in your personal-spending habits, but if, at age twenty-eight, you have a good education and a good job, a $60,000 income, and a $70,000 debt - by no means an implausible scenario - there's a very good reason why you should think hard about controlling your modest share of that $2.5 trillion in U.S. consumer debt: your level of indebtedness will be a key factor in your ability - or inability - to reach your longer-term financial goals, such as home ownership, a dream trip, and, perhaps most important, a reasonably comfortable retirement.

The great English writer Samuel Johnson once warned, "Do not accustom yourself to consider debt only as an inconvenience; you will find it a calamity". In Johnson's day, you could be locked up for failing to pay your debts; there were even so-called debtors' prisons for the purpose, and we may suppose that the prospect of doing time for owing money was one of the things that Johnson had in mind when he spoke of debt as a potential "calamity". We don't expect that you'll ever go to prison on account of indebtedness, and we won't suggest that, say, having to retire to a condo in the city instead of a tropical island is a "calamity". We'll simply say that you're more likely to meet your lifetime financial goals - whatever they are - if you plan for them. What you need to know about planning for and reaching those goals is the subject of this chapter.