In trying to gain control of your financial life, you must consider Wants which is an important piece in the three part formula. Remember you allot 30% of your disposable monthly income in order to satisfy this integral aspect of your financial plan. Besides the economic implications, satisfying Wants is fundamentally healthy and necessary to make you feel well-rounded, happy and fulfilled. But balance is critical.

As human beings we have desires that go in many directions in the material world. Nicer clothes, traveling to Paris, learning to sky dive, eating at Charlie Trotters–the sky is the limit when it comes to Wants. Each of us has our own version of what brings us happiness. Our desires can seem unbounded. Almost everyone could easily imagine spending a million dollars (or nowadays a billion dollars) if just given the chance. We have been raised on images of the American Dream, rags-to-riches success and enormous lottery winnings . Not long ago a man was sworn in as an American Citizen one morning and won several million dollars in the state lottery that afternoon. This makes sensationalized news stories for us to factor into our hopes. Throw in the lures created by highly manipulative advertising and marketing schemes and our desires can get out of balance, especially compared to our actual income.

We may tend to act impulsively on our desires, buying things that are way beyond our means. This is supported by American optimism and creativity. We generally believe that life will get better and virtually all financial problems will be fixed. So the trust supports our wants and these wants construct our dreams. But we need money for a lot of this to happen. In response, we were given a “No problem” offer. The credit industry evolved (or maybe mutated) over the last few decades to fuel our desires. It liberally suggested that we deserve or have earned the easy flow of cash–for whatever we want. For example, having credit cards at our disposal, it is easy to forget that we are borrowing for instant gratification. The Wants get met, but the bills-with outlandish compounding interest rates and baf fling fees, arrive and continue to grow like a cancer. We were lured or duped into a belief system of upward, irreversible economic growth. But eventually the bubble bursts and we are left holding the debt bag.

The solution to this dilemma is to put your feet on the ground rather than building castles in the air. Certainly have big aspirations and dreams but unfold those in steps of progress based on financial facts–both personally and in the larger economic recession. Do not allow your Wants to lead your spending. Strictly contain them within your budget allotment of 30% DMI. Get back in balance. Let the amount of cash in your purse lead the way. With that boundary you can break free of the weight of debt and build a future that is much more prosperous and fulfilling. A balanced approach is really the key to financial freedom and total enjoyment.

*Post theory is primarily derived from the book All Your Worth by Elizabeth Warren & Amelia Tyagi which is highly recommended reading.

Iowa Bankruptcy Attorney Robert Liptak
Fairfield, Southeast Iowa

The third and last element in the debt relief formula is WANTS. So far we have taken your disposable monthly income (DMI), your gross income minus your taxes, and shown how 50% is for your Bare Necessities and 20% is for your Savings. That leaves a balance of 30% which is for your Wants. If your DMI is $2,200 then you have $660 each month for Wants. That’s the calculation but what exactly is Wants. This is the portion of your income that goes to anything you desire. And that means anything. Well, that sounds great. In the example you have $660 cash to splurge. You want to have fun and enjoy life. This is healthy and reduces stress. Right? Absolutely, yes. This creates a balanced approach to your whole life—not just the financial part but as a total person who has more facets than just the one—a dollar sign. There is your intellect, your emotions, your body and your spirit craving and deserving some attention. If you are living within your Bare Necessities already, then you can use Wants money for whatever makes you happy. This is fantastic.

The challenge and the reality for most of us though is that we are exceeding our Bare Necessities allotment each month. We created a hole in the foundation. Yet despite that shaky set up, we still strongly feel that our Wants must be fulfilled. This is the natural inclination we have to round out our personalities. Wants fulfillment helps us progress towards happiness–in theory. Financially, however, when out of balance it can be suicidal. We go about our lives borrowing and spending (using credit cards, loans, etc.) for recreation, restaurants, fashion, gadgets and whatever turns us on, not only exceeding our 30% but amassing debt to try and satisfy our needs. Eventually we recognize the big pinch in our wallets. Ouch. The satisfaction and attempts to gain fulfillment through our Wants sours quickly into immense debt load and debt problems. This leads of course to distress, dissatisfaction, debt depression and even pressure upsetting or destroying good relationships or health.

The technique to deal with this is to regain balance and control of your spending. Go back to basics: Bare Necessities 50%, Savings 20% and Wants 30%. This is the simple and effective starting point to financial healing. Living by this formula will eventually free you of your debt making habits and ultimately will allow you to pay off your past debt and create an pro duc tive and totally satisfying future.

*Post content is primarily derived from the book All Your Worth by Elizabeth Warren & Amelia Tyagi which is highly recommended reading.

Iowa Bankruptcy Attorney Robert Liptak
Fairfield, Southeast Iowa

“I’m living so far beyond my income that we may almost be said to be living apart.” ee cummings

If you are living beyond your Bare Necessities (the 50% of your Disposable Monthly income) then you need to find ways to reduce what you are spending on all those things you actually need to live. This is not any easy task. You might be required to downsize your house, get a less expensive apartment, sell the upscale car and replace it with a moderate cost vehicle, carpool to work or plant a garden (even on your windowsill like my mother does in NY). There are many creative ways to save money and meet the 50% budget. You need to find them for each Bare Necessity.

For example, get new quotes on your insurance policies for your home or vehicle every time they are renewed. Shop around with reputable businesses and get multiple quotes. You would be surprised how much you can save. I added a car and driver when my son turned 16. The underwriters for the company which insured our cars (and home) increased the premium by over $1,200! I was motivated to shop around online. Another reputable company offered the same coverage that increased my premium by only $250. It seemed impossible but true. Then two years later when my son went off to college we sold the car (and had one less driver). My insurer reduced the rate but not as much as I thought it should. So I went back to my original insurance company, asked for a quote and was offered a very substantial reduction.

Negative situations also arise that can be turned into an opportunity if handled intelligently. The phrase “if you are dealt lemons, make lemonade, ” is good advice. A recent experience illustrates how opportunities do come up to make smart adjustments to place you within your Bare Necessities allotment.

Living in Iowa one knows it gets very cold. This fall in preparation for the frigid season we turned on our heating system (water boiled furnace). Unfortunately it leaked severely. Getting a few estimates we learned it was going to cost $4,000 to replace the furnace or $1,400 just to patch it up without any guarantees. We were facing a very large financial hit. Speak ing with the family I brought up how much propane costs (mostly for the furnace) and the reality that fuel costs would spiral upwards over time. We will spend over $3,500 this year on propane (plus $4,000 for a furnace). To add to the pain, it was going to take more than 6 weeks before the work could be scheduled and done. We were slipping into an icy hole. Burrr…

My wife is a very expansive positive thinker. She said, “let’s call Glen”, who is a friend and owner of Mr. Sweeps Chimney & Stove. “Maybe we should get a wood stove.” We live in the country so that seemed charming but we have a fairly large house with three floors that need to be well heated. (Kids get awfully unpleasant when they are cold). I had my doubts that a stove would do the trick. After speaking with Glen, doing some personal research (isn’t the internet a fabulous tool) and working out the finances for the stove and wood, it became clear that at least financially we would save a bundle. And the savings were not just this year–but every year to come because of the escalating propane cost (it went up 40% since last year).

It seemed a little risky but we purchased a high quality wood stove which was installed within the week. (As an aside local reputable businesses can be your best bet for service). The results were that it not only heats the house marvelously well but is a hearth in the home, drawing everyone together to sit and chat (my wife and I cuddle up) and to enjoy the charm and beauty it creates. A loss became an opportunity and a huge savings in the long run.

Your task then is to continue to find opportunities to reduce the expense of your Bare Necessities without compromsing the overall quality of your life–and perhaps enhancing it! Explore, investigate and negotiate. Look for ways to improve your finances. Do not take on any new debt in the process. When you start living within your 50% allocation, a huge pressure will be taken way from your life and your foundation to build your Wants and Savings will be rock solid.

*Post theory is primarily derived from the book All Your Worth by Elizabeth Warren & Amelia Tyagi which is highly recommended reading.

Iowa Bankruptcy Attorney Robert Liptak
Fairfield, Southeast Iowa

The cost of shelter is your rent or if you have a home, usually mortgage payment(s) and real estate taxes. It also includes required utilities for electric, gas/propane, water/sewer and basic telephone. There is also home/renters insurance to consider. The next item is basic food costs. A single person per month should allocate about $250 for all food and add about $180 per month for each extra person in household. Transportation costs are car payments, gas and maintenance, or other costs that get you to work every day, such as bus, train, parking and tolls. If you have a vehicle that is more than 6 years old and has greater than 100,000 miles on it you should realistically figure about $150 each month for the maintenance and repair costs.

Other miscellaneous Bare Necessities may be Medical Care costs like health insurance or recurring payments for medical expenses and prescriptions. Also you might have required legal obligations such as child support or alimony, student loans and long term contracts (not credit cards) which are necessary expenses for you.

When you add all of these costs together they should not be more than the 50% of your DMI. If they are than you need to make some changes–which we will discuss in a future post.

And remember: to get out of debt, make it part of your daily resolutions to NOT take on any more new debt. If you can’t pay for it in cash, generally DON’T BUY IT!

***Post content is primarily derived from the book All Your Worth by Elizabeth Warren & Amelia Tyagi which is high ly recommended reading.

Iowa Bankruptcy Attorney Robert Liptak
Fairfield, Southeast Iowa