Cash and Debt Management

Considerations When You Have Too Much Debt

If you’ve got debt problems, the cash flow you just completed probably didn’t make you very happy.

Take a good hard look at your cash flow. What is the rock bottom amount you can survive on?

Consider the following:

• Think about interest rates. How much are you paying on your credit cards?
• Could you go six months without buying any clothes? This is fairly easy for adults to do, but hard if you have growing children. If you do need clothes, could you buy them at outlets or only when they go on sale?
• Could you go six months without eating out?
• Rent a DVD instead of going out.
• Look in your local paper... there are lots of things you can do for free.
• How much money do you spend on convenience foods and impulse items at the grocery store?

Would you be able to eliminate most of these?

• Could you survive without a vacation this year?
• Could you drive your car an extra year?
• Could you give up cable TV?
• How much money could you save on phone bills if you strictly limited long-distance calls?
• Could you stop using credit cards except for real emergencies?
• How many things do you pay for that you could really do yourself, or talk a friend into helping you with?
• Is the amount you spend on gifts really necessary? What about giving your time instead?
• How about sending your children to community college for two years, and then switching them into four-year schools?
• Could you live someplace cheaper?
• Would your landlord be willing to trade some work around the complex for a reduction in rent?
• Would you be willing to rent out a room in your house? Or trade living space for babysitting?
• Watch your thermostat! Get an automatic timer so that you don’t waste resources when you’re out.

Now construct a future cash flow, or spending plan, that will help you be on your way of getting out of debt. Think bare bones. What is the absolute minimum it would take to feed and house you and your family? You may be surprised at how little it is. Remember: we’re not asking you to live like this forever. Wouldn’t a year or two of sacrifice be worth it to get that debt cleared away?

Use this worksheet to prepare a Future Cash Flow: A Bare Bones Spending Plan

Lastly, look ahead to the future. What’s a good compromise between where you are now and bare bones? Add back the luxuries that are important to you. Include an amount for savings.

Use this worksheet to prepare a Future Cash Flow: Spending Plan For The Future

It takes a lot of time to put a spending plan together. But if you do it well and thoroughly, you’ll have something to aim for. It may not work out exactly as you’ve planned. But a spending plan will give you a way to measure your progress. And that’s all you may need.

Trick Of The Trade

Did you get an allowance when you were younger? You may remember carefully rationing to get the most you could out of it. The allowance method works well for many people, and it can be an especially good tool for couples and families. A certain amount of money, agreed on by everyone, is given out as an allowance. Anyone can spend their allowance any way they want. There’s no discussion or argument.

The allowance can include all variable expenses, including clothing, or it can be just lunch money and pocket change. Generally, the more personal variable expenses it includes, the better. And the allowances do not have to be the same. If gas is included in the allowance, for example, and you commute 30 miles to work and your spouse works 2 miles away, your allowances should be adjusted to reflect that.

If you use this method, arguments should subside. If your spouse wants to eat peanut butter sandwiches for a month to buy a new fishing rod with what’s been saved, you are not allowed to object. You have already agreed on this, remember? And if you want to stop buying clothes for six months so that you can spend a weekend playing the slots in Atlantic City, your spouse can’t object either. That’s the deal.