The last option

9 November 2010
The economic crisis seems to be lingering longer than anyone predicted. We see various indicators starting to predict slow improvement but people are still losing jobs, the housing market, particularly in the US is shaky and in Australia grocery prices are going through the roof. Last year in the UK, one fifth of families, in homes of working age people, had no one working. I continue to get emails from people who are at the point of giving up, they've lost their job or just don't seem to be able to make any headway in paying off debt.

The answer to this problem never changes, in good times or in bad - stop spending, write up a budget, save an emergency fund and get rid of credit cards. It sounds simple, but I know it isn't. It's one of the most difficult things to work at and it is an ongoing battle, but the payoffs are enormous and significant.

So what is the first step toward long term financial health? Well, I'm no financial wizard but I think saving for an emergency fund, and a sound budget, should go hand in hand as the first step towards a sound future. A budget is like a map you draw yourself so that you'll know how much money you have each week, how much you need to spend on living and expenses, and how to pay off your debts in the most effective way. Once you have that map, you need a safety net, one that will allow you to work, pay off debt and enjoy your life without the threat of falling back into debt. Enter the emergency fund.

Don't rely on credit cards to keep you out of trouble. They only give you more debt to pay back. You end up paying the original cost, plus interest. The less interest you pay during your life, the better off you'll be. Do yourself a favour and retire the credit cards. Keep one for emergencies. Pay off all your credit cards and take great pleasure in snipping them up with a pair of scissors. Old ones of course.

Once you've got the basics in hand - you've stopped unnecessary spending, you've made up a workable budget, you're paying off your debts and saving for an emergency fund, the thing that will help you more than anything else is to keep working and set about saving as much money as possible. How you do that will differ with everyone of us but cutting back on non-essential services like mobile phones, cable TV and long distance holidays is an excellent start. Then it's the small things like the frugal use of electricity, water, gas and fuel, learning to shop for grocery bargains, shopping at thrift shops for clothing, blankets, household goods and craft items. You'll save even more money if you cut out fast food and convenience food and start cooking from scratch. Stop shopping the cleaning aisle at the supermarket and start cleaning with bicarb, vinegar, soap and water and that will keep more of your money in your pocket and less in the coffers of the multinationals.

There are so many ways to save money in the home. Hanno and I live on a fraction of what we used to spend and we are happier now than we've ever been. Paying off debt and being in control of your own life has more rewards than anything you'll buy on a whim or the fanciest meal you dine out on. But it's not easy. Especially when you start. It seems like you're standing at the bottom of a cliff face and you need to start climbing.

If you're in the situation where you have a lot of debt and don't know what to do, there are three alternatives - do nothing and pretend it will go away (it won't, it will get worse), keep spending and dig a deeper hole, or draw a line in the sand and promise yourself you'll start working towards a better future, today. If you do either of the first two options, you'll face an uphill battle your whole life, or at least until you can get your debt under control, but if you take the last option, you'll slowly but surely work towards a better future. It will be a future where you will be in control, you won't worry every day about what you can or can't afford, you'll even get to the point when you can decide whether to work part time or keep going full time - you'll give yourself that choice.

I know there are a lot of people here who've been smart savers for many years, there are also a lot who need help and who want to start moving towards a more frugal future. If you've got some smart ways of saving money, please share your tips with us. You never know, the ideas you contribute here today might help someone in dire straits, so please take a few moments and give us your best advice.