Where Did All That Money Go?

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Author: Unknown

CONSUMER DEBT

Your W-2 or 1099 has arrived. You tear off the perforated edge, pull out the center page, gape at the amount you made in 2005, and wonder: Where did it all go? It's not a fortune, you think, but it's enough that you 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.

Do not feel too discouraged. The first step toward solving a problem is admitting you have one. Former financial counselor Eric Tyson, author of Mind over Money, says this is the perfect time of year to take stock of spending habits and make a change. "Many messages in our society--the proverbial Joneses--tell you that you must spend, spend, spend to project a successful image," Tyson points out. "Those who live consumer debt-free and within their means tend to coast below the radar. That's too bad. Those are the people we should emulate, not the ones who always have the latest gadgets, the trendiest wardrobes, and the most maxed-out credit cards."

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. Tyson offers a few suggestions:

• Mental mistake number one: thinking consumer debt is the American way--everyone has it. The remedy: realizing you do not have to be like "everyone." We all know credit cards, with their astronomical interests rates, bleed us dry, prevent us from building a nest egg, and lead to untold stress and anxiety.

• Mental mistake number two: 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 does Tyson think it is wise to keep your old, paid-for car, he does not believe in financing automobiles--at all. "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 number three: believing money equates to happiness. The remedy: trying a more modest lifestyle for a year. If you are working yourself to death to pay for the large home, that gas-guzzling SUV, and a giant-screen TV, on some level you probably think they are necessary ingredients for happiness. However, are you really happy living this way?.

"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," Tyson says. "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," Tyson concludes. "If you're spending to impress your neighbors, your co-workers, or your clients, you're doing it for the wrong reasons. They won't be the ones working until 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."

PHOTO (COLOR): Instead of going into debt to purchase an expensive vehicle like this Hummer H2 SUV, why not just hang on to your old, paid-for car?