Cool Your Spending: When Money Habits Get You Into Hot Water.

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"OK. Don't panic. Don't panic. It's only a Visa bill. It's a piece of paper; a few numbers. I mean, just how scary can a few numbers be?" —Sophie Kinsella, Confessions of a Shopaholic

Overspending can spell big trouble for your financial future and your relationships. Here's how to get things under control.

Budget to handle life's messes.

"Plan for the unexpected," said Carmen Villahermosa of ChoiceOne Bank. Relying on a credit card for emergencies isn't a winning strategy; it's too easy to use for other things—and while low interest rates can be tempting, they eventually rise.

Ours, Yours, Mine: A system for managing money with a partner.

  • The Primary Joint Checking Account receives all income. All bills are paid from this account. Once bills are paid, savings are transferred to savings accounts and discretionary spending is transferred to separate individual checking accounts.
  • The Primary Joint Savings Accounts is intended for emergencies. Aim for enough to cover three to six months of expenses.
  • A Secondary Joint Savings Account holds savings for future expenses and large purchases: annual insurance bills, vacation, remodeling, projects and gifts.
  • Individual Checking Accounts for Partner 1 and Partner 2 are for each partner's own discretionary spending, with an agreed-upon amount deposited each paycheck.

Source: Rua Hekhuis, CFP, CRPC, Merrill Lynch

Understand your credit report and what you can afford.

Before making a big purchase, review your credit report with a loan officer at your bank, identify problem areas, and create a to-do list to clean up your credit report to qualify for a better interest rate. "Often, people have emotion tied up in their decisions," Villahermosa said. Meeting with a loan officer in advance can help singles and couples make practical, rather than emotional, decisions.

Track your spending.

Tracking your spending can provide a reality check. Free online tools and phone apps such as Mint, EveryDollar and You Need A Budget (YNAB) make it easy to see where your money goes.

Come clean.

"Compulsive gambling, shopping or expenses from other addictions can bring on a spiral of debt very quickly," said Jon Weeldreyer, psychologist and addiction counselor at Pine Rest Christian Mental Health Services. Own your responsibility. Don't place blame on others. Apologize and make amends: Surrender account access, take on extra work to bring in more income, et cetera. Counseling can help.

"Therapists are of most benefit for those couples that need additional skills about communication, outside just the financial arena," Weeldreyer said. "The goal is not to just 'do the math,' but to identify personal priorities. Trust in the partner is vital—and in the cases of compulsive gambling or shopping, the trust has been damaged."

Plan for the Future

Which comes first: paying off debt or saving for retirement?

Generally, delay investing and dedicate as much income as possible toward reducing high-interest debt. But if your company offers a match on its retirement plan, such as a 401(k) or 403(b), get your full match. "If your company will match the first 3 percent, you should contribute 3 percent of your paycheck—but no more than the match amount—while you pay off your debt," said Rua Hekhuis, CFP, CRPC, Assistant VP-Wealth Management, Wealth Management and Senior Portfolio Advisor, Merrill Lynch.

How can I divert money to retirement savings when my budget is tight?

Assess your actual cash flow, Hekhuis said. Track all spending for a month and identify the leaks, large and small: drinks, coffee, lunches, boat payments, new car lease, premium cable. Decide if you want to "invest" in these things or invest in your future.

Saving money pre-tax in a retirement plan is a great way to invest when there's little wiggle room in the budget, said Christine Steinmetz, CRPC, Financial Advisor, Merrill Lynch. "By saving pre-tax, the impact to your wallet is softened."

"Start small now and conscientiously increase your retirement savings efforts when possible," said Amber Coleman, CRPC, Assistant Vice President, Senior Financial Advisor, Merrill Lynch. "Make it a point to increase by one to two percent each year, perhaps coinciding with an annual review or raise."

The Bottom Line

"While it may sound harsh, in reality saving for retirement is not an optional expense," said April Armstrong, Assistant VP, Senior Financial Advisor, Merrill Lynch.

"Food, shelter, clothing and retirement savings should be the essential budget items if you want to have a comfortable, secure retirement. "

Written by Jennifer Reynolds. When she's not writing, sailing or buried in a good book, Jennifer Reynolds teaches at GRCC and Jenison International Academy. Transplanted from the Petoskey area to Holland in 2012, she is a big fan of the latter's farmers market and bike paths. She also enjoys kayaking, yoga, and puttering in her kitchen and garden.


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