7 dire money mistakes
Leo Tolstoy famously wrote in "Anna Karenina," a novel that culminates in an equally famous suicide, that "All happy families are alike; each unhappy family is unhappy in its own way."
When families are unhappy because of their finances, however, they've typically chosen one of a relatively small number of paths to get there.
That became abundantly clear when MSN Money invited readers to post their debt and credit questions to the Your Money message board as part of "Get Out of Debt Day." Although the posts ranged all over the financial map, those in the most serious trouble often committed one or more of the following acts of financial suicide:
Carrying credit card debt
Carrying credit card balances is not the norm in America, as I wrote in "The truth about credit card debt." More than half of U.S. households have no credit card debt, and only 7.2% carried balances of $10,000 or more, according to the latest Federal Reserve survey.
Yet four- and five-figure credit card debts were scarily common among the Get Out of Debt Day posters. Many of those who had significant credit card debt were already behind on payments or dealing with collectors. Even those who were paying on time had suffered the consequences of bloated debt.
Poster Bobbie Pittsburg said he and his wife have $50,000 in credit card debt after a two-year stint of unemployment while putting four kids through college. Their high debt loads and previous trouble making payments were playing havoc with their credit scores and their plans to downsize to another home.In hindsight, Bobbie and his family didn't cut back soon enough or hard
enough. The kids should have been shouldering more of the costs of
their education, and the parents should have been more cautious about
using credit cards as a crutch.
Carrying any credit card debt is a
big, red flag that you're living beyond your means. Paying off that
debt should be a priority. If you're not sure how to come up with the
money, check out MSN Money's Learn to Budget Decision Center for ideas.
Letting fixed-living costs swell If
you've cut your spending to the bone and are still struggling, maybe
you need to take a closer look at the bones -- that is, your basic
Poster Alee, for example, has a mortgage payment of
just $550 a month. But combine that with her monthly utility bill of
$300, and she's already spent 60% of her $1,400 a month in take-home
pay -- and that's before paying for groceries, gas and other
necessities. Even if she didn't have $12,000 in credit card debt to
finance, Alee's spending would be out of balance, according to
Elizabeth Warren, a Harvard University bankruptcy expert and co-author
of the personal finance book, "All Your Worth." Warren recommends people's "must have" expenses total no more than 50%
of their after-tax income. (Your after-tax income is basically your
take-home pay, with any non-tax deductions like 401(k) contributions
and health insurance premiums added back in.)
"Must haves" typically include:
- Mortgage or rent
- Utilities (including phone and television)
- Transportation (gas, car payment, car insurance)
- Other insurance (life, health, property, disability)
- Child care
- Minimum loan payments
- Child support or other court-mandated payments
Once you've trimmed the easier stuff, like utilities and groceries,
you come to more agonizing decisions, such as finding cheaper child
care, opting for less expensive housing or taking in a roommate.
Alternatively, Warren said, you can look for ways to boost your income.
Either way, hard choices and extra effort may be required to get
yourself on track. But a budget that seriously out of balance can't be
sustained and event