ShareThisBy STEVE BUCCI
Sunday, November 05, 2006
Dear Debt Adviser,
I enjoyed reading "50 good things about being debt-free." Within that article, I would like to read more detail on "Plan an Attack, Mac." Very, very interesting subject. It led me to think about how I should prepare for life-changing events. When it comes to money, I know so little how to handle or save for rainy days. Thank you.
_ Rose
Dear Rose,
The rainy days will come.
The only real question is how prepared we will be for them. That's why having a plan is so important.
One of the main points of the "50 good things" column was to point out that being in control of your financial destiny is a good thing.
Ducking that debt
To refresh my readers' memories, here is the excerpt Rose is talking about:
Plan an attack, Mac
13. Knowing what to do before a marriage.
14. Knowing what to do to prepare for a divorce.
15. Being prepared for a job layoff.
16. Knowing how to create a realistic budget.
17. Understanding the advantages of planned spending.
18. Getting better interest rates when you borrow.
Knowing what to do before a marriage.
That means coming clean with your soon-to-be spouse about your financial condition. Knowing if your partner is ahead or behind in the finance department is as important as knowing if he or she is healthy or has a condition that may affect the marriage. You don't need to know to the penny, especially in later-life marriages or partnerships, but it is only reasonable to expect to know what you are signing up for. Sharing credit reports is one way to be sure that no one says "Aye-yi-yi" after "I do."
Knowing what to do to prepare for a divorce.
It's never fun or easy to prepare for a divorce. After informing your ex-to-be, you should close your joint accounts as soon as possible and establish separate accounts and credit. Ask that joint accounts be closed to any new activity. Agree about who will pay which bills, and transfer whatever obligations you can to credit cards or loans in your own names. In community-property states you will want to transfer the debts into the new accounts after the marriage is dissolved. An added benefit will be establishing credit in your own names, which will be useful after the divorce.
Being prepared for a job layoff.
This falls into the category of "emergency savings cushion." This is the No. 1 way to be prepared for those rainy days. Three to six months of living expenses should be sufficient to allow you to successfully bridge to a new job without financial injury.
Knowing how to create a realistic budget.
It begins with adding up total income and expenses. In order to be financially successful, your income must be more than your expenses. If it is not, a second job, overtime or selling something is probably in your future. Once you get to retirement, your expenses may exceed your income, but be careful to anticipate how long your savings will last and what you will do if they run out.
Understanding the advantages of planned spending.
The biggest advantage to planned spending is the fact that you have prepared for the expense, either through savings or by cutting back in other areas. Once you have done this for a while, it will become second nature and you will develop a spending instinct that will be your guide. Knowing how a new expense will affect your bottom line will enable you to make the best decision for your financial, mental and sometimes physical well-being.
Getting better interest rates when you borrow.
In order to get better interest rates when you borrow, you will need to be sure your credit reports are in good shape. The best way to do that is to pay every debt you owe on time, every time. "Debts do not improve with age" is one of the Debt Adviser's favorite mantras.
(The Debt Adviser, Steve Bucci, is the president of Money Management International Financial Education Foundation and the author of "Credit Repair Kit for Dummies." Visit www.moneymanagement.org or call 877-311-2227 for additional debt advice.)
