With his new book, "Enough Already!," Peter Walsh hopes to bring the craziness and unbalance in your life to an end. By focusing on six key areas of your life— family, relationships, work, health, money and spirituality — Walsh discusses how parts of your life are interrelated.
Read an excerpt of the book below and click here to hear an introduction to the book.
MoneyIf a home I am working in has a clutter problem, there is a money problem not far behind. This is true without exception. We live in a culture that sends very clear messages about what we have and what we should have. The more successful we are, the more we should acquire—that's a sign of success, right? More is better—heck, if one is good, then two must be great, right? Don't pass up a bargain—if it's on sale, it has to be a fantastic deal, right? It's the ultimate irony to me that every year, especially around the holidays, we get media reports on the "health" of the American economy. The way that "health" is measured is by the rate of consumer spending. That's correct, the economy is only "healthy" if we're all out spending money on more stuff. By implication, if we happen not to be spending, then clearly we're not too well.
We are confronted daily with many conflicting messages: Buy, buy, buy. Save, save, save. Spend your tax rebate. Put money away for the future. The problem is compounded by the amount of "stuff" we see around us. Things are cheap, credit is easy to get, and we feel we deserve to have whatever we want, whenever we want it. But, and you know this, individually and as a nation we are spending more than we are earning, and sooner or later we'll have to pay the price of having whatever we want whenever we want it. It's easy to pull out the plastic, but not so easy to make the payments when gas, groceries, and the price of most other commodities is rising daily. If you have credit card debt and no idea how to get rid of it, you're not alone. But the fact that many of your fellow Americans are equally trapped in financial quicksand is no excuse, and it doesn't mean you're going to be okay. The stuff that chokes your home may well also be choking any chance you have for financial health. If this sounds like you, read on!
Clutter takes us out of the present. The homes that I work in are usually filled with either "memory clutter"—the stuff that holds us strongly to an important person, an achievement, or an event in the past, or "I might need it one day clutter"—that's the stuff that we're keeping for that "just in case" moment sometime down the track. It's a wonderful thing to have important objects to remind us of beloved people or events from our past. It's useful to plan for an unpredictable future. However, people become so preoccupied with what they have that they can't focus on what's most important—the here and now. Without a balance between these "past and future items," combined with a keen awareness of what is needed now, there cannot be peace and harmony in a home.
As with the stuff we own, so with the money we have. It's exactly the same.
Our culture urges us to become financially irresponsible the day we leave home or even before we fly the family nest. Credit card applications clutter your mailbox, promising that you can acquire all the trappings of adult life—cars! furniture! trips! dinners at fancy restaurants!—before you even have your first job. So we buy things. We buy whatever we want. Even before we start earning money, we've been so barraged with attractive advertising that we feel we have to go right out and spend. According to Nellie Mae, graduate students carry an average outstanding balance of over $8,000 on their credit cards. With employment comes easier access to money—either from an income or from one of the 1.3 billion credit cards burning a hole in our collective pockets. So our houses fill up—first with what we need, and then with stuff we don't need and, in fact, never use. If only we were able to save as well as we are able to spend.
Not so long ago I worked on a home that was floor-to-ceiling clutter. I estimated that there was more than $500,000 worth of purchases in the home, most still sitting untouched in the original shopping bags. When the unused items were sold—online and at a yard sale—the family made less than $20,000. The worst part of this story, however, is that the couple is in their sixties, in deep credit card debt, living off their home equity line, and with little savings or investments. Quite literally, the clutter is stealing this couple's financial security.
No matter how little or how much money you earn, managing your money is simple. Yes, emergencies happen. Yes, jobs are lost. Yes, health insurance in this country is a real problem. Yes, living is expensive. I'm not saying you'll never end up in the hole. But there is a way out. There is a way to recover and there is a way to save. It all starts with cleaning up the mess you've made. Do you hide financial records from yourself or your partner? Do you leave mail unopened and bills unpaid for longer than you know you should? Do you feel guilty when you think about what you spend or what you owe? Do you feel scared when you think about your financial future? Do you buy on impulse and later regret the purchases? Do you spend with no idea of how much you have or what you owe? Do you have something as basic as a budget in place? Let's see just how much financial clutter you've got to clear away.
Imagine the financial life you want
Bills and paperwork can be overwhelming, especially if you're hiding bad spending habits behind disorganization. The first step to clearing your financial clutter is to set some goals. You work to earn money to live your life. Finance is about how you spend and save that money. Spending is about enjoying life today. Saving is for the future. Your financial goals should accommodate both. Let's get some organization into this by thinking about what you need and want today and in the future.
Your emotional relationship with money
We -aren't born knowing how to handle money. Our parents, peers, culture, and life experience guide us. Every household teaches different lessons, large and small, about the role of money in life. I know two families who lived next door to each other. In one house the children were taught to turn out every light in the house when they left home. If they left a light on, they had to put ten cents in a jar toward the wasted electricity. In the house next door, the children were taught to turn on all the lights before they left the house to ward off intruders, electric bill be damned! This may seem like a small difference in philosophy, but imagine what life would be like if the children from these two houses married.
My acquaintance Jon is a very successful investment banker. I can only imagine how much money he has socked away, but what I do know is that he has three lovely vacation homes in different parts of the country. He wears custom-made suits, owns several luxury cars, and eats at the finest restaurants in Manhattan. But join him on a trip to the grocery store and you'll see a different man. He agonizes over each purchase—should he really buy the yellow pepper that the recipe calls for when green peppers are half the price? Why purchase the fresh orange juice his wife has put on the shopping list when the frozen juice he grew up with is half the price? The Jon who emerges in the grocery store is fully defined by the financial upbringing his Depression-era parents gave him.
What are the lessons your parents taught you about money? Were they careful with how they spent money? Did they cut coupons and count pennies, but spend lavishly when it came to vacations? Are you imitating your parents' spending patterns or reacting against them? Were you taught to handle money? Did your parents give you an allowance and ask you to take responsibility for certain expenses? How old were you when you became aware that there were certain things your parents could and couldn't afford? Did your parents keep you completely in the dark about how much money they had, how they decided to spend it, and what role it might play in your life as an independent adult? What effect have your peers had on your attitude toward money and spending? Do you spend more to keep up with them or do you see your friends making smart spending choices?
What is the emotional tenor of your relationship with money? Do you think of yourself as "bad at math" and leave the bill paying to someone else? Are you intimidated by investing? Do you feel entitled to certain material goods, regardless of how much they cost? Do you spend money impulsively and regret it later? When did you start doing this? Why?
How does your relationship with money have to change? Do you need to overcome fear? Do you need to educate yourself by reading a book or taking a class? Do you need to explore your sense of entitlement—where it came from and whether it is realistic—in order to bring your spending under control? You can't lose weight without eating fewer calories, and you -can't save money without spending less. If you -aren't happy with your financial situation, you'll have to remove emotion from the equation when it comes to your spending decisions. If you earn $100 and spend $90—no problem. If you earn $100 and spend $110—there's a problem. It's that simple!
How much of your income do you need to survive? Are you able to take care of those needs? Remember, you're just talking daily sustenance here. How much do you currently spend on food, clothing, and shelter? How much debt do you have? Is it "good" debt or "bad" debt? Good debt is money that you borrow toward something that will produce cash flow, like taking out a mortgage to purchase a home, which gives you a place to live, a tax advantage, and an asset that grows in value over time. Student loans also fall under this category—school increases your earning power. Bad debt is money that you borrow to purchase disposable items, often with a credit card. If you don't make monthly payments in full, you're effectively paying more for the items you purchased. What seemed a bargain the day you purchased it isn't such a deal when you're barely touching the principle and paying 25 percent interest on your credit card balance three months later.
Often when I am looking at the clutter in someone's home, the homeowner will exclaim with a lot of pride: "I'm a great shopper! I can find a bargain better than anyone else!" If you ever go shopping "just for fun," then every single thing you buy on one of those expeditions falls into this category—the stuff you want but don't need. You usually know when you're splurging. But in today's world, some of your luxuries have started to feel like necessities. If you're not successfully managing your money, spending responsibly, and saving for a rainy day or your retirement, then you're not entitled to a high-tech TV with cable service. That is a luxury. If you're not managing your money, then you're not entitled to expensive restaurants and prepared foods. Those are luxuries. If you're not managing your money, designer clothes, fancy cars, jewelry, and vacations are luxuries. If you have credit card debt and/or you're not managing your money, these are the areas you're going to have to examine for costs to cut. Notice some repetition here? If you're in a financial hole or struggling with your money and are serious about turning things around, these luxuries are the first things that have to go—no discussion!
Think about the major expenses that you know -you'll have in the future, and imagine those that might take you by surprise. Will you need money to pay for a wedding—yours or your -child's? Is there a chance you'll want to go back to school? Do you have children you hope will go to a private college? Do you own a home? How long will you be making payments on it? What maintenance is due? Will you need or want to move to a more expensive place?
As you think about your needs in the future, you must anticipate unpredictable circumstances. What if you have a serious car accident? You'll need insurance and money set aside to deal with medical expenses and lost income. What if something happens to your spouse? A parent? What responsibilities might you have and will you be able to afford them?
At some point, you will want to stop working, and at some point, whether you like it or not, you will have to stop working. Think about it. You won't want to move to a shack at age 67. You don't want to subsist on food stamps. You'll need to pay for health insurance, which is all the more expensive in your twilight years. You will still have monthly expenses, but your income will drop significantly. You'll want to have life insurance at rates that are locked in when you are young and healthy. You have to have savings if you want to sustain or improve your standard of living.
Tomorrow's wantsAre you living your dream, or do you fantasize about a future lifestyle with a higher pricetag? Do you wish you could afford more exotic vacations? Where would you like to live? Are you hoping to move to somewhere warm and sunny or to settle into a lush suburb? Would you like to leave your job for one that earns less money but is more fulfilling? Can you afford to do so? Do you anticipate retiring one day? How will you live? Will you take cruises? See a movie every day? Will you finally become a wine expert? What kind of car will you drive? Will you take some long--postponed vacations and pursue long-delayed hobbies? Well, guess what—you can't pay for your fantasies with play money.
A nest eggI'm asking you to contemplate your needs, wants, hopes, and dreams and to translate those desires into dollars and cents. At the same time, I want you to make reasonable preparations for worst-case scenarios, when accidents, illness, job loss, family troubles, or (don't get me started) global warming wreak havoc on your finances. Money in the bank isn't just security, it's options. If you want a better lifestyle with a decrease in salary, if you want a better life for your family, if you want to be prepared for changes that crop up unexpectedly, your best bet is socking away the money that can open doors for you. The best way to feel safe and hopeful about now and the future is to create a comfortable nest egg.
Clear the clutter of unreal expectationsBefore you lock the vision you just defined into place, I want you to think again. This will sound harsh, but most of us today have inherited an outrageous sense of entitlement. We have come to accept our high standard of living as normal, another of the many "rights" we assume as a citizen of this country. We think we deserve a big house just because we were born in or moved to this country. If we want it, we should be able to have it. This "self--first" mentality is relatively new and, I believe, inherently destructive. Think back just a generation ago. We don't carpool—we think each family member is entitled to a car. Did our grandparents have two cars? Did they pay for cable and multiple cell phones and the Internet and movie rentals? Did they have computers and digital cameras and printers? Did your grandmother get manicures, massages, and highlights in her hair? How many pairs of shoes did your grandfather own? The mindless consumption that I see day after day in the homes I work in is staggering. Consumption is perceived as our right, seemingly regardless of the consequences. Our country is experiencing an explosion of luxurious living that transcends economic class and it simply cannot last. We -can't spend with abandon, rack up debt buying whatever we want, and not expect the bill to come due someday. Someday soon!
So go ahead, envision your ideal financial life, but try to focus on living your life, not filling it with objects. Remember that extra stuff always comes at a cost. When you make a decision to spend money today, you are responsible for that decision. If you spend all your income on luxury goods when you are young, -you'll pay the price later. Try to appreciate what you have. -It's not about depriving yourself, -it's about striking a balance that enables you to spend responsibly and live without the stress and anxiety that come with financial problems. Curb the urge to acquire, and -you'll have more time and means to take pleasure in life.
Watch out for obstaclesPeople are scared of money. The easiest thing to do is to put your paycheck in your bank account, spend what you spend, and hope for the best. But the wisest thing to do is to be aware of in and outflow, to clear up bad debt, and to invest your savings so that it grows over time. Unless you are in a financial crisis, you can clear up the clutter around your finances little by little, without making high--risk investments. -There's nothing to be scared of, but fear is the biggest obstacle to clearing financial clutter. -Let's talk more about the other obstacles that stand in the way of your best financial future.
Andrew is an architect in San Francisco. Andrew -doesn't earn a lot, so he, his wife, and their three children save where they can, shopping at discount clothing retailers and driving an older--model car. He -doesn't have money set aside for the children's educations, much less college, but he figures -they'll find a way to make it work. On the other hand, Andrew loves new technology and his family always has the latest—from the latest--generation iPhones for him and his wife to fancy cell phones for his elementary school--age children. They love to dine out at the best new restaurants, with their children, and they enjoy going on expensive vacations every year. Andrew loves his life, which matches that of their social set. He knows he should resist these expenses, he worries, and he never goes into debt, but he watches their hard--earned savings drop a little each year.
My friend Eleanor is a successful freelance writer. I was chatting with her about her plans to buy a Manhattan apartment when it came out that she had all of her savings in a bank account. She had more than $60,000 just sitting there earning less than 1 percent interest, and most of it had been in the same account for over ten years! The long--term average return for the stock market is around 10 percent. Do you know how much that means she could have earned? Neither do I. I understood compound interest for five minutes in high school, and right at this moment I'm regretting that I -didn't pay more attention so I could do the math. At any rate, I know she made a mistake, and she knew it, too. Too nervous, too busy—whatever it was—she never got around to the very simple task of opening a brokerage account and buying a mutual fund or two.
If you know your finances -aren't in shape, today is the day to start making changes. Forfeiting your $3.75 custom--brewed, extralarge, nonfat, no-foam latte every day for a year saves you more than $1,300. When it comes to spending and saving, small changes accumulate over time. Interest compounds (just -don't ask me to do it for you) and that means money in your pocket.
DebtUsually when I talk about clutter -it's about the stuff that fills your home—the paperwork, all those extra clothes, the stuff in the garage or basement, and those unidentified items in black trash bags covered in dust under the bed in the spare bedroom. In this book, I've been talking about the clutter in your mind—doubts, fear, bad habits, poor communication, ingrained behavior—the obstacles that stand between you and the better life you could be living. Now, stop and think about this—debt itself is also a genuine obstacle that not only impedes your life, but also has the power to totally destroy it. It descends on you when -you're young and foolish and accumulates faster than you can believe. Those appealing interest rates that entice you to get rich in the stock market make you poor when -they're applied to your debt. If you have debt, my sympathies go out to you. Credit card companies really do take advantage of people when they are most vulnerable. However, now that -you've gotten yourself into this mess, -it's up to you to get yourself out of it. -Don't hire a debt negotiator or a credit repair company. So many of them are scams that the FTC has a fact sheet recommending that consumers beware. Take responsibility. You can hire a reputable credit counseling organization. Most of these are nonprofit, but -there's little guarantee that their services are legitimate, and many of them have hidden fees. A referral through an institution, friends, or family is the safest way to go. Check www.ftc.gov for more guidance. The first and best step you can take to clean up your finances is to reduce, and ultimately get rid of your credit card debt. (In the next section, "Declutter Your Finances," I'll tell you how.)
Spending as leisure activity
When did recreational shopping become such a major participant sport in this country? -It's so popular it has to be close to being included as an Olympic event! Anytime you head out to a mall, a shopping district, or a favorite store without a specific idea of what you need to buy, you are shopping just for fun. Think about it: Is spending money on clothes, music, electronics, or anything else one of your favorite activities? When you bring new items home, do they sit in the closet with the tags still on for weeks, months, even years? This is a really common sight in the homes I declutter. For many, many people in our consumer culture, recreational shopping has become an antidote for boredom or unhappiness. Shopping is the primary hobby of many people with whom I work. These people -don't get as much pleasure from the items purchased as they do from the shopping itself. For most people who shop to shop, it is the addictive thrill of the purchase that keeps them going, the actual item acquired is secondary and is often forgotten quickly after being brought home. Unless -you're loaded with cash, this pastime will get you in trouble, big trouble, and fast! The constant purchasing not only fills your home with the clutter of unused items, but it also drains your bank account and drives up your credit card bill. The clutter of the stuff and the clutter of the debt make an impressive—and daunting—team.
Lack of prioritization
If you -don't have a major shopping problem, -there's no need to go cold turkey. You just need to make smart choices about when and how you spend your money. There are infinite nice things you can purchase. How do you know when to stop if you -don't have a sense of what you can afford or how to stay on budget?
Fear and denial of the futurePlanning for your future -doesn't mean living like a monk today and saving for a plush retirement. Planning for your future means safeguarding yourself and your family against financial collapse if all -doesn't go as planned. You need an emergency fund of easy--to--access savings that you can rely on if -you're out of work for six months (longer if your employment is unreliable). You need disability insurance and a will. -It's tough to set this money aside when it -doesn't buy tangible goods. Being in a car accident would be bad enough. You -don't want it to destroy you financially as well as physically.
Paperwork procrastinationWhenever I declutter -people's homes, -it's paperwork, especially mail, -that's a major issue. The only way to know how much you have, how much you owe, how much -you're saving, and how much you can spend is to open those envelopes, pay those debts, and file those bills.
Declutter your finances
Commit timeIt can be overwhelming when you start clearing up your financial situation. How do you even know where to start? Whenever I face a situation of any kind with a client—be it physical clutter, diet, or money management—that is completely out of control, I like to begin with a Quick Purge to bring some of the most daunting mountains down to size. When it comes to your finances, -you're not going to start by purging—you -don't want to throw away any important documents. Instead, -you'll do a Quick Count. This is a one--time investment in your financial future and I need you to devote time to it. Set aside at least half a day and be prepared to work until -you've finished taking stock of your current financial situation.
The purpose here is to get a clear snapshot of where you stand financially—what you have, what you own, and what you owe. This may be frightening, but the clarity that comes from having a clear understanding of your financial situation is more empowering than you might imagine.
CommunicateNow that you have this snapshot of where you stand financially, -it's time to figure out where you want to go. Remember that very few people have the ability to buy whatever they want whenever they want it. You need to strike a balance between meeting your financial responsibilities, enjoying your life today, and investing in your goals. Understand -what's important to you and make choices based on your priorities. If you are married or in a long--term relationship, do this with your partner.
When you fall in love and decide to spend the rest of your life with someone, the first conversation you have usually -isn't, "So, are you fiscally responsible?" Consequently, money is one of the earliest and biggest problems to crop up in many long--term relationships. Money is one of those key issues, like child rearing, that people have deep beliefs and views about. Rarely do couples have the same attitude about money. Most of us -don't find money the most romantic topic of conversation, but the problems that come with financial clutter are real and worth clearing away. Otherwise they can grow to be as painful and out--of--control as any home overrun with all those things someone inherited from his grandparents and just -can't seem to let go.
If your attitudes toward spending are wildly diverse from your -partner's, the best way to resolve them is on paper. Instead of criticizing money choices, decide on your financial goals together. You need to have a shared vision for your finances in the same way you need to have a shared vision of the life you want. In both cases, the vision comes before you decide how best to deal with the clutter. Calculate what you need to save to reach your vision. Once you establish your goals, you will know how much money you can spend on luxuries. Only at that point should you start to discuss what level of spending is reasonable and how to manage it.
Spending quirksEvery household has spending contradictions. You buy discount toilet paper but subscribe to three hundred cable channels. You only buy clothes on sale but drink expensive wine when you go out to dinner. You drive around looking for the best gas price but enjoy extravagant vacations. You spend an hour on the phone getting a fifteen--dollar late fee eradicated, but you indulge in expensive art. -It's okay to have spending quirks, but you should acknowledge and own them. And if -you're in a partnership, you should both be onboard with your spending choices. Now is the time to talk them through.
Spending secretsDo you buy new shoes and hide the price tags from your husband? Does your wife know how much that new television cost? Hiding money secrets may not feel like deception because you never shared your expenditures with your spouse before you got married. But if you keep secrets, you need to ask yourself why. Why are you lying to the person who should be your closest confidant? What are you afraid of? You may enjoy the expensive dress you bought behind your -husband's back, but what is it costing you? Now is the time to come clean and not compound spending problems with deceit. Either you have the money to afford your purchases, or you -don't. If you truly plan to grow old with your partner, you need to find common ground in terms of how you are going to do that. The first step is to know and agree on where your hard--earned money goes.
Set boundariesI've said that in your physical space, your relationships, your job, and your family you need to set limits. The same is true for your money. If you -don't honor and respect your relationship with your money, that relationship will eventually sour and, like the clutter in your home, become overwhelming, suffocating, and even paralyzing.
The concept of a budget is one that terrifies many people. -They're worried about the restrictions a budget will place on their spending. But budgets, like room planning or deciding what will best fit into a space, are actually a step toward greater freedom rather than less. In your decluttered home, I ask you to set boundaries by only keeping the amount of stuff with which you can comfortably live the life you want to live. In relationships, those boundaries are more abstract and personal. At work, you need to establish boundaries that separate your work life and your home life. When it comes to money, you need to set boundaries that help you balance your needs and desires in the present and your needs and desires in the future. With clear boundaries, there are no unwelcome financial surprises and your financial situation is clearly laid out. This type of financial organization frees you from many of those nagging worries and concerns about the unknown.
That said, I'm not a fan of keeping a budget that is so meticulous that the budget becomes a source of stress and discord. A budget should be a tool to help you manage your money, reach consensus on what is reasonable spending, and track the financial health of your family. If the budget becomes an end in itself, -it's unlikely that -you'll have any commitment to sticking to it for long.
Why not give it a shot? Here -let's create a one--time budget, a budget for grown--ups.
Now wait. Before you get too excited about how much you have to spend, consider this: You -haven't factored in food, clothing, savings, or emergency funds. Now I want you to examine the last three or more months of credit card bills and bank statements to see how much "discretionary" money -you're actually spending on a monthly basis. Is it more than you have to spend? Are you just breaking even?
Decide how much of your discretionary money you want to save each month. Decide where you want to save it (direct deposit to a money market account works), and put it there the day you get your paycheck. Then you have a general sense of how much money you have to spend for the rest of the month while guaranteeing that -you're putting money away to pay off debts or build a nest egg. If your current spending rate is in line with your goals, great. If not, choose some cuts that will put you in the right range. Instead of counting every penny you spend, -you're making a lifestyle adjustment.
Break the shopping habitIf you always joke about being a shopaholic, or you know that you have a real shopping compulsion, -it's time to start taking the problem seriously. Start by keeping a shopping journal. Track when and why you make your purchases, and look for trends. Do you shop to reward yourself? Do you shop when -you're lonely? Stressed? Do you always shop with the same friend or friends? Can your shopping companions afford more expensive stores than you can?
The idea of spending money to save money is one that I encounter often. Something is a bargain—or a "real bargain"—so -you'd be crazy to pass it up, right? You bring the "great deal" home and, because you -don't need it right away, you put it away in a cupboard or closet and there it sits. -Here's the bottom line—as long as there are shops and markets and malls (or the Internet), there will always be another bargain, another sale, another deal. My grandmother was so right when she said that you can go broke saving money. Leave the deals where they are, keep the clutter at bay, and put a little something in the bank.
Once -you've identified the triggers that compel you to shop, look for new activities to fill those needs. Can you fill the empty time with equally fulfilling activities, like pursuing new hobbies, exercising, or spending time outside? Try imposing a six--month moratorium on shopping. Nothing except the bare essentials (food, cleaning supplies, toilet paper) comes into the house. -It's a challenge, but not only will you see how few purchases you truly need, -you'll jump--start your savings.
Look to the futureRemember, -it's not guaranteed that -you'll be able to work until the day you die. And even if you could, who wants to? Even if your aunt Ruth has promised to leave you millions, -there's just no guarantee. Take responsibility for your own future. No matter how young and in debt you are, your plan must include saving money. You may not be able to start doing so today, but plan to get there. You can send me a letter from your lavish retirement home in the south of France to thank me—include a round--trip ticket for me to come visit, too!
Make changesHold the idea of the life that you want in your mind as you work through the process. Just as clutter -doesn't appear overnight and -won't disappear overnight, your financial problems -can't be solved in a day. Here are all the steps you should follow to clear your financial clutter in order of priority. Just cross off the ones that -don't apply to you and -you'll have your plan.
1. Clear away the paper piles. The only way to face the reality of your financial situation is to start with a clean slate. Your financial life will not take care of itself. Look to the place in your home where you currently manage your financial matters and ask yourself: Does the financial management of my life have a high priority? Show that you give priority to managing your finances by establishing a place in your home for paying your bills, keeping financial records, and managing the money aspect of your life. You give priority to what you think is important.
2. Get out of credit card debt. Hands down, credit card debt is the most destructive type of clutter you can have in your life. No matter what your financial goals are, the first change anyone should ever make is to overcome credit card debt. In case you -didn't notice, credit cards have the highest interest rates around. They are ruinous. The interest that -you're paying on that debt is higher than the interest you might earn on even the best investment. So before you invest a single dime, you need to work to pay off your credit cards once and for all.
Experts agree that the best—and possibly the only—way to pay off credit card debt is by yourself, little by little. Gather all your credit card statements together. For each card, write down the total amount you owe, the minimum monthly payment, and the interest rates.
Pick the card with the lowest interest rate and destroy all the other cards. From now on this will be the only card you use, and you will only use it for essential purchases until you have paid off all of your debt. Start paying with cash.
Add up your minimum monthly payments. At the very least, commit to meeting them every single month. If you miss a payment, your interest rate goes up, your credit score goes down, and it will be harder and more expensive for you to borrow money in the future. On top of paying the monthly minimum, you should commit a minimum amount toward reducing the principal owed every month without ever, ever letting your car or house payments fall behind. I'm sorry, but I -didn't say this would be easy. Just keep in mind how much further your paycheck will go when -you're no longer paying such enormous interest fees on your debt. The climb out of credit card debt can be one of the toughest -you'll make, but -it's worth the focus and willpower to achieve it.
Decide on an additional amount that you will contribute to your debt every single month. Make it as big as possible. Remember, making this payment every month will bring down your minimum monthly payments. How exciting is that? Still, this is the hard part. -You're in debt for a reason—it's been hard for you to save. Think of this as a serious money diet. Only allow yourself essentials until all the debt is gone. No shopping. No birthday presents. No restaurant meals. No travel. If you have credit card debt, -you've been living beyond your means. -It's that simple. Now -it's time for the overspending to stop and the underspending to start.
Attack the cards with the highest interest rates first. As you embark on paying them off, try to get your rates reduced. Call the credit card companies one by one. Tell them -you're pleased to be a customer, but you would like them to lower your rate so you -don't have to take your business elsewhere. Even if you are never going to use those cards again (which I hope you -don't), go ahead and make that call. -Don't sound like a desperate, broke debtor. Remember, -you're paying these folks lots of money. -You're calling them as a customer who is looking for better service.
Even if you -don't succeed in getting your rates down, you have a plan. -You're paying the monthly minimum every month, and paying down the maximum you can every single month. Stick with it. Do. Not. Shop. Imagine how wonderful it will feel to put that monthly minimum into a savings account instead of into a credit card -company's deep pockets.
3. Cut spending now. -Don't spend money you -don't have. That sounds like pretty simple advice, right? But -simple's not always easy. When it comes to discretionary spending—the small spending choices you make on a daily basis—there is a basic rule: Don't spend money you -don't have. At first, you will have to work hard to keep your wallet in your pocket, but after a while you will realize that this choice has become habit. -You'll benefit twice: less clutter and more money.
4. Start setting money aside for the future. Unless -you've been given a year to live, you need to be saving for the future. If you -aren't saving, you need to make changes. I -don't want you to feel like -you're scrimping to get by. I want you to enjoy your life. But spending your way into stress, sleepless nights, collection calls, and maybe even bankruptcy -isn't worth the costs. Money -isn't the only way to enjoy life. You need to find a way to thrive without overspending. -Don't count on things changing without your taking action. Let me say that again: Don't count on things changing without your taking action. They never do. You can buy all the lottery tickets you want, but meanwhile, learn to enjoy living within your means so you -don't feel the paralyzing stress of financial clutter.
You spend too much money on stuff you just -don't need. This may sound like a bold statement—I've never met you. But I'm confident that it is true for 90 percent of the people who buy this book. You -didn't get where you are—feeling like your life is cluttered and out of control—without bringing too much stuff into your home and your life. The best way to break your shopping habits is by going cold turkey. Just stop. Keep remembering that you really need very little to be happy and they -don't sell happy at the store. Shopping is not the only recreation in the world. Get your family or friends involved in other activities. Challenge one another to find other ways to entertain yourselves. I'm confident you can do it.
5. Invest your money wisely. The first investments you should always make are those that you can do with pretax dollars. Why? Because money that you contribute to a 401(k), an IRA, or another retirement plan -doesn't count as income for tax purposes. In fact, you -won't pay taxes on it until you retire. That means more money sitting in your account, growing over the years. If your employer offers a 401(k), you should max it out. Open an IRA and contribute the maximum every year. If you have children, open 529 college saving plans, which -aren't subject to capital gains taxes, for each of them and contribute the most you can every year and encourage the grandparents to contribute cash (they'll have to do it through you) rather than bring more of the same toys every time they visit. Bear in mind that none of these retirement investments is liquid. Before you invest, make sure you have emergency funds to carry you for several months in case of illness, injury, or job loss.
6. Balance your portfolio. -Don't be scared of your money. You -don't need to be a financial wizard to invest your money so that it grows over time. The key words are "over time." All investments have some level of risk, but over the long term, the stock market has only grown. What that means is that if you are truly saving for a retirement that -isn't on the imminent horizon, you can bear some risk. Why? Because you -won't be withdrawing the money for a long time, so if the market falls, you -won't feel the loss. By the time you need the money, it will have bounced back, and, by the miracle of compound interest, the more years -you've had money in the stock market, the more the amount that you have will have grown.
Where to go for helpIf you know nothing about individual companies, then -don't buy individual stocks. Instead, opt for low--fee mutual funds that aggregate a number of stocks. Choose a diversity of funds. I'm not a financial adviser. There are plenty of books, websites, and magazines that tell you how to balance your portfolio to include small--cap, large--cap, domestic and international stocks, and bonds. -You've probably heard of the big ones: Money magazine, MSN Money, CNNMoney, Motley Fool (www.fool.com). -Don't write these off as resources for "other people," people who already know about finance. All of these sources provide basic information for new investors. At the very least, you can research a portfolio balance that makes sense for you, and then review your portfolio at the end of each quarter and adjust it so that the balance of investments stays the same. You can do that, -can't you?
If -you're ready to take it to the next level, discount brokerage houses like Vanguard offer onetime financial advice with a flat fee (for Vanguard, the fee is $1,000 per year if you have less than $100,000 invested). Your bank probably offers advisory services. Or ask friends to recommend a money manager who can make onetime recommendations or handle your investments for you. Get some sound financial advice. Understand what -you're doing. If unsure, ask lots of questions until you feel comfortable and informed. Capital gains taxes can affect your profit significantly, so don't buy and sell willy--nilly. You need to factor in how long -you've held an investment.
Live in the presentI always talk about being where you are. Being present. Being in the now. So -what's with all this talk about putting money away and saving for the future? Well, for one thing, most of the money people spend is on unnecessary items that only add to the clutter in their homes. Those items promise you a life that seems out of reach—one in which you are beautiful, rich, even wildly successful. But saving for retirement is the best action you can take toward achieving that out--of--reach life. Of course, saving for retirement -isn't all that matters. I do care about the quality of your life right now. If saving for a reasonable future takes a toll on your life today, I want you to think carefully about what the true cost is. What are you sacrificing? What should you be sacrificing? How can you make up for that value? Again, -it's about striking a balance that works for you.
Live within your meansWhy do you spend more than you can afford? I -don't buy it when people plead dumb, saying they just -don't know how to manage their money. Change comes with choice. You have to make the choices instead of letting the situation or circumstances choose for you. I have great confidence in the innate wisdom and ability of people—I see it constantly and at the most surprising of times. I believe in you and your awareness of your own circumstances. If you get bills you -can't pay every month, but you still buy new clothes or the latest electronic gadget or cell phone, something else is going on. Some part of you feels entitled, like you deserve to live at a certain level. Maybe you grew up with certain luxuries and you have trouble giving them up. Maybe you went without as a child and you -don't want your own family to suffer the same sense of deprivation. Maybe -you're trying to keep up with the Joneses, and the Joneses are out of your league. Whatever the reason, you are out of touch with reality. The more stuff you buy, the more you bring into your home, the further you move from what is real. That lack of connectedness has a real cost. It can be tough to stay on a budget when your friends are eating at expensive restaurants, driving the latest--model cars, and wearing pricey clothes. It can be hard to resist your children's desires when you want them to have every opportunity. I'm sympathetic, truly I am. But I insist that you balance the value of those items today against what they will cost you tomorrow. In our society, the passage of time directly affects how much money we have. Debts grow over time. Investments grow over time. The sooner you take control the better, even if it means inviting your friends over for pizza instead of shelling out for the four--star restaurant. So you might have to swallow a little of your pride in the process—is that so bad? You can even try being open about your choice. Many people are struggling with their finances. You might just be surprised at how well others respond.
VacationsMost of your vacation costs are the air travel and hotel accommodations. There are many ways to cut these costs and still take a relaxing, rejuvenating break from your work life. Let airfare be your travel agent: buy tickets far in advance or to the place with the best rates.
Stay close to home. Save on the airfare by being a tourist in your own town or city, or traveling within driving distance.
Visit friends who live someplace cool. Just make sure -you're entirely welcome, -don't overstay, and splurge on a generous host gift for them.
Rent an apartment with a kitchen. -You'll save enormously by not eating every meal out.
Treat yourself at home. Eat out and have massages in your hometown every day for three days. Go visit those local attractions that others come to your city to see but you never do. -You'll spend far less than you would for a week out of town
Eating out and takeoutWith half of all meals now eaten outside the home, we are spending more money than ever on fast food and restaurant meals. Even the least--expensive restaurants cost more than preparing food at home. Find substitutions that do what restaurants do for cheaper:
A romantic dinner. A picnic is the most romantic homemade meal around. If the weather -isn't right, have a picnic on your living room floor. If your living room -won't cut it, choose certain nights to put a special romantic spin on dinners at home. Find a new menu online, light candles, and save the dishes for the morning.
Eating out. Eating out costs more than eating in. And it -doesn't necessarily save time. If you prepare your food at home you can use the "in the oven time" to do other things, like talk to your kids or partner, pay bills, decompress, or walk the dog. You saved money and bought yourself some time. If -it's the effort of cooking the meal that overwhelms you, try buying prepared, or nearly prepared, foods at the grocery store occasionally. Just make sure they are healthy and that you -aren't spending all your money on short--term convenience.
Clothes and furnishingsImpulse shopping. If you want to save money, the first activity that has to go is shopping for pleasure. Of course, -it's always fun to have something new, but -don't buy a new TV just because you see one on sale. If your TV works, do you really need a new one? Are you shopping to fill the hole of unhappiness? Are you hoping that something new will change your life? Is shopping a way of avoiding being home or facing reality? Every time you have the instinct to add something to your cart, stop and pause. Think about what -you're about to do.
Children's clothes and toys. Even if -you're a very careful spender, you might find yourself splurging on your kids. You love them. You want the best for them. Maybe buying things for them makes you feel like a better parent. Maybe it gives you a sense of control. Maybe it makes you feel better about not having enough time with them. Maybe you buy things for your children in order to answer one of your own needs or to fulfill your own dreams—that you never had enough money growing up to get what you wanted as a kid. Or you want your kid to be cool because you -weren't. Perhaps the only reason you indulge your children is because you want to (temporarily, it turns out) silence the endless begging and pleading. Maybe you are caught in the idea that more is better and have a misguided sense that the more things you give your kids the more you love them. -There's an endless supply of cute clothes, shoes, and toys out there. Something is always on sale. The best way to control spending on your children is to stay out of the stores. Period. -Don't buy for your -child's future sizes or tastes. You never know how fast -she'll grow or how his taste will evolve. Wait until he or she gets there. And when they do, I guarantee -there'll be another bargain and another adorable outfit waiting just for you! Solicit hand--me--downs from friends and family and shop secondhand stores when a need arises. Kids grow so quickly that there are often some lightly used garments that barely made it out of the dresser.
Gifts. I'm all for gifts when they are unique or useful and inspired. What I -can't stand is gift giving for the sake of it. If you have the kind of relationship with your friends and family where they know what your financial situation is, then it is perfectly acceptable to substitute a thoughtful, handwritten card for a birthday or holiday gift. It really is the thought that counts! If you -can't keep your gifts appropriate to your wallet, -don't give anything at all. If the holidays are an over--the--top gift exchange, propose that only children receive gifts, or implement a Secret Santa drawing, where each family member chooses a name out of a hat and gives only to that person.
Big-ticket items (electronics, home improvements)
I am sorry, but if you are serious about saving money, you just -don't need a flat--screen TV. Nor does your thirteen--year--old son need the latest iPod, laptop, or cell phone. Yes, these luxuries improve your quality of life, but I question whether they improve it significantly. Put differently, is the sticker price worth the cost to you and your family? You can watch the same programming on a lesser TV. You can listen to the same music on a less--expensive MP3 player. -Don't be an early adopter. Wait until the digital camera you want is cheaper. TVs get less expensive every year. All of these items come with a cost to you and your -family's financial stability.
Home improvements can be necessary, like a new roof, or optional, like landscaping or renovating. Renovating costs add up fast, so keep in mind a basic rule of renovation. Take what the contractor tells you, then assume it will take double the time and double the budget—it's a law of the universe. Stick to necessary changes, avoid financing any renovation through your credit cards, and stay within your budget. In the excitement of improving your home, -it's easy to overcapitalize. Get some solid advice and -don't lose your head. Set a budget, look your contractor in the eye, tell him the figure, and—come hell or high water—stick to it. Even if it means some part of your initial project has to wait till next year.
Grocery billsWhen it comes to grocery bills, you -can't just buy cheap bulk foods. Healthy choices (which -we'll explore in the next chapter) are sometimes more expensive, but they have cost benefits. Junk food affects your health and well--being and, ultimately, your ability to perform well at your job and your kids' ability to do their best at school. Junk food is not the path to happiness and a long life. If you eat healthy, balanced meals, -you'll feel satisfied. -You'll be a healthier weight, -you'll live a healthier life, -you'll feel more attractive, and -you'll spend less money trying to find clothes that -don't make you look fat. Buying and cooking your own meals with whole foods means healthier meals and a healthier future. I've written a whole book on the connection between the weight in your home and the weight on your hips. Check out Does This Clutter Make My Butt Look Fat?: An Easy Plan for Losing Weight and Living More for strategies and techniques for tackling this area.
We'll talk about clearing the clutter in your diet in the next chapter. For now, all I ask is that you -don't waste money on anything that promises to make you thin. Invest in a long and healthy life, -don't splurge on the easy, empty, quick--fix promises that -you're bombarded with every day. Instead, take the time to plan meals that truly nourish and sustain your family.
Small expenses (lunch, coffee, movies, magazines)
Little luxuries are often the most painless cutbacks to make. But -there's no point in making these sacrifices if you -don't end up with the savings to show for it. If you decide to eliminate your daily latte, then put aside the cost of however many lattes you used to have and make weekly or monthly deposits in a savings account or a "drip" fund, stock funds that often let you make investments of as low as ten dollars. (Drip—what better name for a fund holding your coffee savings?)
No real bargainsRemember my grandmother, who used to say that you can go broke saving money? I've said it before and I'll say it again: -There's no such thing as a bargain. Instead of looking for the best deal, I want you to practice mindful spending, valuing quality over quantity. Cheap things -don't last. They either perform badly or soon need to be replaced. -That's how you can go broke trying to save money.
Face fearsJust like the clutter in your home, -it's easy to ignore your financial situation. Over time those numbers stop feeling meaningful. Maybe you buy lottery tickets or hope -you'll get a windfall from the lonely, childless widow next door or long--lost Uncle Bill who moved to Florida twenty years ago. But denial -doesn't work forever. You need to take control of your money while you still can. You need to take responsibility. Money may not interest you, but you need it to live. You need it to create certain (though by no means all) aspects of your ideal life.
Clearing your debt—just like clearing any clutter that stands between you and the life you want—should be a priority. Make it one. Keeping your spending secret from your partner is another form of denial. You think if your little gambling habit or shopping problem is never acknowledged, then it -doesn't exist. Wrong! The longer you deceive your partner, the harder it will be to restore trust. Shame is hard to endure, but the damage that dishonesty wreaks on a relationship is far worse. Cut your losses and clean up your mess sooner rather than later.
Assess your risk enduranceMy onetime colleague, Lynne, had two grandfathers who were both lawyers. They both worked for the government, so neither had an enormous income. One grandfather was a savvy investor. He invested all of his savings in the stock market and real estate. The other avoided risk, especially when it came to his money. He put all of his savings in treasury bonds, with a low but reliable interest rate. At the end of their lives, the grandfather who invested was a millionaire. The conservative grandfather left his wife with a small apartment, a pension, and barely enough savings to get her through the next thirty years she went on to live without him. Riskier investments have greater returns. Get advice that helps you know what level of risk -you're financially and emotionally ready to handle.
Plan for unforeseen circumstances
You could lose your job. Your home might burn down. You could be in a severe car accident. A family member may become suddenly ill. You will most certainly die. Thinking through these possibilities -isn't doomsaying, nor does talking about misfortunes cause them to occur. Dispense with the superstition and be realistic. You need to protect yourself and your loved ones from financial ruin if the unexpected occurs.
If -you're the primary breadwinner for your household, consider how long it might take you to find a job. If it will take you six months, then how much money do you need to have readily available in a money market or other accessible bank account? You should try to have enough money to cover six months of living expenses. If you are self--employed, you need to think about disability insurance. If you think you -don't need it because -you're in perfect health, think again. According to the American Council of Life Insurers, nearly one--third of all Americans will suffer a serious disability between the ages of thirty--five and sixty--five. And as for life insurance, if your untimely death would put your family in dire straits, -don't live in denial. Take care of them. By all means, leave a will. An estate planner can help you make sure your assets -aren't tied up in probate while your loved ones live on bread and water. And be sure to update these policies if you marry, divorce, have children, or remarry. I know -it's hard to contemplate these hardships, but -don't let your emotions clutter your priorities. If you care about the people closest to you, -you'll spare them cleaning up your mess when -you're incapacitated or, you know, dead.
Celebrate successesNeedless to say, I -don't want you to celebrate cleaning up your financial clutter by throwing the party of your life. The rewards that come from taking control of your financial future and clearing the financial clutter from your life are significant. Some of them only kick in when -you're sixty--five, but some of them come earlier—the sense of relief in knowing that you have a system that ensures bills are paid on time, without annoying late fees. The comfort you can take knowing that if something happens to you, your loved ones will be safe. The pride you have in having accumulated long--term security. The better organized you are about your finances, the less you have to think about money, the more time you have to live your life. And -that's what -it's all about.
And then -there's the stuff ...Financial clutter always takes the form of paper. -Let's dive into it.
FilesFile cabinets are full of papers you will never look at again. I'm convinced that 80 percent of what goes into a filing cabinet never sees the light of day again. -It's incredibly difficult to throw away files. After all, at some point in time you thought this piece of paper was so valuable that it deserved to be filed. And now -you're going to just . . . throw it away? The answer is, yes. -That's exactly what -you're going to do—on a regular basis comb through your files and discard those once--indispensable, now completely unnecessary pieces of paper.
Tax stuffI dealt a lot with paperwork and filing in It's All Too Much: An Easy Plan for Living a Richer Life with Less Stuff, but -it's probably worth repeating here some of those broad and fairly conservative guidelines for managing your bills and financial records for tax season and audits. My official disclaimer is that you -shouldn't take my word for it and should check with your own accountant or financial adviser to verify that this information is up-to-date and accurate for your state and situation.
If you want to check the official word on this, read what Uncle Sam has to say at the website of the Internal Revenue Service. Download Publication No. 552 at www.irs.gov for complete details of what to keep and what you can let go of to keep the tax man happy.
Unopened mailOverstuffed files create stress and disorganization. -That's bad enough. But unopened mail always creates money problems. Those sealed envelopes contain bills that increase as they go unpaid. They contain reminders of the deposit due to hold your -child's place in school. They hold notices of changes in credit card rates. They hold insurance reimbursement checks that -don't earn you interest until -they're deposited. The longer you ignore envelopes, the more they build up. Unpaid bills get sent again so you have twice the work to figure out how much you owe. And the pile sits there, on the table in the entrance hall or, worse, spread across the dining room table, a constant reminder to you (and your family, if you have one) that life -isn't secure. Things -aren't under control. Disaster looms. Remember what I said at the beginning of this chapter? No more paperwork procrastination. -That's where I wanted you to start and -it's where I'll end. Start with the clutter. Clear it out, clarify your goals, and make the life you want a reality. Are you ready to go? -Here's a quick cheat sheet for tackling your home office and financial clutter:
Create a vision for the space where you handle your finances. There should be an inbox for bills to be paid and whatever supplies you need to pay them (computer or checkbook, envelopes, and stamps).
Overcome obstacles that prevent you from doing paperwork. Come clean with yourself and your partner and prepare to move forward.
Commit time, even if -it's only twenty minutes during which you sort and shred every day. Just make sure you prioritize your current paperwork. Handle new papers first, then spend leftover time dealing with the old.
Communicate with your partner about your shared vision for managing your finances. If you -aren't both committed, you -won't succeed.
Set boundaries. Live within your means. If you tend to overspend, give yourself a twenty--four--hour cooling--off period before committing to a purchase.
Make changes. Only by changing the role stuff plays in your life will you be able to stop buying more things, let go of the clutter, and find a financial balance that makes sense for the life you want.
Live in the present, but set aside funds for the future as soon as a paycheck comes in so you can live with the confidence that -you'll continue to enjoy life.
Face fears. Owning up to your money troubles is the first step toward solving them. If you ignore debt, it gets worse fast.
Celebrate successes. As you simplify your finances, you will feel more relaxed and secure. You work hard for your money. Enjoy knowing that -you're making the most of it.
From ENOUGH ALREADY! by Peter Walsh. Copyright © 2009 by Peter Walsh Design, Inc. Reprinted by permission of Free Press, a Division of Simon & Schuster, Inc, NY.