Do You Overspend?

Credit-card
debt grew to $654 billion last year from $50 billion in 1980; the
average American owed about $2,000 in unpaid revolving debt,
although income for American households now averages $38,000 a
year.

Most people cannot afford to
owe more than 20 percent of their take-home pay, aside from
mortgage or rent payments, according to the National Foundation
for Credit Counseling.

So before going on a spending spree that you’ll regret when the
bills come in, consider adopting some of these suggestions:

Make a spending plan. Know how
much you are earning and spending.

Before buying, ask yourself:
Do I need it? Do I want to dust, dry-clean, or otherwise maintain
it? How many hours will I have to work to pay for it?

After you’ve savored the
victory of some "painless" penny-pinching, get more
serious and create a written plan.

Identify lack of willpower.
For example, fill out the catalog order form for what you want,
then put it aside. One week later, allow yourself to send away for
what you can actually remember, without looking at the order form.
You wind up buying only what is important, says Mary Hunt, author
of Debt-Proof Living.

Get the family involved.
Look over what you’ve purchased for spouse and children the past
six months (the checkbook and credit-card receipts will help), and
ask them if they really needed that new compact disc, ball glove,
or pair of shoes.

Stay away from yard sales.
If they don’t need it, you probably don’t either. That’s the
unconventional message from David E. Rye in his book 1,001 Ways to
Save, Grow and Invest Your Money.

Bank those pennies.
Buying a regular coffee on the way to work instead of a latte
saves about $1 a day. Put that money into a mutual fund for 10
years starting at age 22, and you could have $90,000 at
retirement.

Pay yourself first,
through an automatic-investment or savings plan.

Your employer’s 401(k) is the
best choice, and it will help you recognize the power of compound
interest as investment returns accumulate and build on themselves.

Stay healthy. Regular
exercise and a good diet can make you healthier and wealthier.

Exercising an hour a day can
add at least $250,000 to the retirement net worth of a
22-year-old, thanks to lower medical bills and a longer career.

Also, stop smoking. By
not smoking, you increase your life expectancy and, with the
saving of the cost of a pack a day, a 22-year-old will increase
his or her net worth at retirement by more than $700,000.

Get a good education.
The average college graduate makes about $30,000 a year more than
the average high school graduate. Get an advanced degree on top of
your bachelor’s degree and you add $40,000 more.

Saving and investing just 10
percent of the extra $70,000 a year will add more than $2 million
to your retirement worth.