Making Money

Last year we decided that our little family would try to survive on just one income. I embarked on a plan firstly to stem the overspend and then to generate additional revenue streams where possible.

So how do you stop the overspend that is endemic in our society? Two words: 'credit cards'. The single most important factor fuelling our over-spending and keeping us poor is what we have in our wallet !. My primary aim has been to reduce credit card debt, and this is how I set about doing it. Firstly I tried to consolidate my debt onto one 0% offer card - failed because had too many accounts open but inactive. I then took steps to obtain my credit report and set about officially notifying companies that I was closing the accounts that were inactive. I successfully applied for a different 0% card and transferred all my outstanding debt onto it. No interest means that 100% of my payments go to reducing my debt, but there is one more vital step.
ZERO credit card spending. This is the hard part, but if you want to see immediate results, it is the only way. Extra income from investments and bonuses has been put to good use reducing this debt and in less than a year, the debt has halved. My strategy will be to pay off what I can and then transfer to another 0% deal when this one expires - watching the debt drop month by month is very encouraging and has given me quite a buzz.

So how do you survive without using a credit card? For this you will need RESOLVE - ie. you need to recognise that you can no longer have the things that you don't have the money for. This covers everything from a bar of chocolate to a new printer for your PC - if you don't have the money for it in the bank, don't buy it! This is a tough lesson, but it's also very logical and how everyone used to live before credit cards came along. Never do your food shopping on your credit card - use cash or a debit card instead (a debit card takes the money straight from your bank balance).
In my quest to reduce debt, we devised a budget and put aside an amount every week for food and groceries. We take out this amount in cash every week and when it's gone, it's gone. We have halved our grocery expenditure by doing this (and we're not starving either!). The amount we set aside is basically, the portion of my income that I can afford to allocate to our joint account less the monthly direct debits. All it takes to achieve this new manageable level of expenditure is RESOLVE (look it up)

This fundamental change in the way that we now view our finances (ie. get rid of credit cards and use a cash budget to control our weekly expenditure) has improved our financial status tremendously. When you consider that this change came about because our family annual income dropped by thousands (ie. my wife's wages), it is bizarre to find that our debt (well, to be honest MY debt) has more or less halved in less than a year. This is purely down to taking on board that all spending must be accounted for (a 'look after the pennies' philosophy) and controlling expenditure with cash. I have even walked the two miles to work on occasions to achieve 'non-spending' days and to exercise the discipline of only buying fuel when the cash is there to do it.
There is of course, a cost... My personal purchases have been severely curbed, I would like to have a nice new flat-screen for my PC at home, but for now, my ancient CRT will have to suffice. We have not been on a holiday for a long time, but I think we can live with that in the short-term. When you think of it, it is exactly this type of spending mentality that fuels debt: 'We must go on a foreign holiday...', 'I must have a flat-screen for my PC or wide screen HDTV' - these are the purchases which often end up living on our credit cards for far longer than a month...

The truth is this, there are a very significant proportion of people in the Western world who are simply overspending. When you sit down and calculate realistic income versus outgoings, too many households will discover they are literally spending more than they are making.

So how does this happen? Credit cards and loans are the simple answer, the solution is not to consolidate with more loans - the solution is to STOP SPENDING. However, there is another closely related truth, the Western economies would be dealt a huge blow if everybody did actually stop overspending. This is not hyperbole, a downturn in spending on 'gadgets' and non-essentials would bring some industries to their knees. However, as long as controlling our spending does not become a major trend, we can probably actually rely on the debt-ridden population to prop up the economy.
If you are seriously considering taking control of your spending, then I applaud you - you don't need to take the exact steps that I have, just employ some resolve, take control of your outgoings and watch the debt fall.

I was inspired to write this whilst reviewing another blog, and would like to suggest that you check out the tips and advice at http://financial-independence.net/
I also found some very revealing facts whilst researching this subject which I have copied here:

Total UK personal debt

-Total UK personal debt at the end of March 2007 stood at £1,318bn. The growth rate increased to 10.5% for the previous 12 months which equates to an increase of £116bn.
-Total secured lending on homes at the end of March 2007 stood at £1,104bn. This has increased 11.5% in the last 12 months.
-Total consumer credit lending to individuals in March 2007 was £214bn. This has increased 5.9% in the last 12 months.
-Total lending in March 2007 grew by £10.8bn. Secured lending grew by £9.9bn in the month. Consumer credit lending grew by £0.9bn.
-Average household debt in the UK is £8,833 (excluding mortgages) and £54,452 including mortgages.
-Average owed by every UK adult is £28,024 (including mortgages). This grew by £168 last month.
-Average outstanding mortgage for the 11.6m households who currently have mortgages is £95,170
-Average interest paid by each household on their total debt is approximately £3,525 each year.
-Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,550 per average UK adult at the end of March 2007.
-Britain's personal debt is increasing by £1 million every 4 minutes.

Today in the UK:

-Consumers will borrow an additional £318m today
-The average household debt will increase by over £13 today
-300 people today will be declared insolvent or bankrupt
-Bank and building societies will hand out £1bn in mortgages today
-Citizen Advice Bureaus will deal with 5,300 debt problems today
-The average car will cost £15 to run today
-The average home will cost £30 today to run
-Raising a child to the age of 21 will now set you back £23.50 daily
-The price of a typical house will increase by £46 today
-24.3m transactions worth £1.3bn will be spent on plastic cards today
-£82m will be spent online today
-1/3rd of all groceries we buy today will end up in the dustbin.

read the full article by Richard Talbot on www.creditaction.org.uk here
(extract used with permission of Credit Action)

My starting point for money-saving has been the Money Saving Expert website - this is geared towards UK money savers, but the content here is priceless to anyone. Martin has all sorts of advice to offer, and for the UK market, comparisons of all utility services (gas, electric, phone) to give you some pointers as to whether you should think about changing service providers.
You don't need to do too much research because Martin has teams of researchers doing it all for you. If you are not based in the UK, then you should take steps to investigate how much you can save on your current outgoings for these type of services (where there are alternatives). In the last 6 months I have changed my Gas and Electric provider, my telephone and internet services provider. I have continued to search for bargains and have found how I can cut in half my already very low website hosting bill.
The message of this article has been:
1) by all means seek out new income (from online money making or whatever scheme you choose) but
2) don't forget to make sure that you are not spending money that you don't need to, as this could easily wipe out your extra income.
I made $184 in May 2007 by being paid to blog, but by changing four of my service providers I will also SAVE $100 in May, and by transferring my debt to a 0% credit card I will actually saved another $100 in just one month. If you employ some of the principles in this lens, there is no reason why you cannot be $200 better off each month, and if you start blogging like me, you will easily be able to make it $400 a month.