Control spending and save for a rainy day

DALLAS - As 2009 winds down and you plan for a more financially healthy 2010, don't forget this year's key lesson. Free-wheeling, debt-hungry spending is out. Actively managing your personal finances is in.

That sea change in consumer behavior grew out of the worst economic recession since World War II, a prolonged downtown that ravaged savings and retirement accounts.

Granted, there are signs of improvement from a year ago. Some indications:

- Retail sales rose 1.3 percent in November, prompting some to suggest consumers were ready to spend in earnest this holiday season.

- Americans' net worth - the value of assets such as homes, bank accounts and investments, minus debts such as mortgages and credit cards - rose 5 percent last quarter to $53.4 trillion. It was the second straight quarterly increase.

But the recovery remains in its early stages.

Since the recession began in December 2007, more than 7 million people have lost jobs, ballooning the unemployed to 15.7 million.

And despite recent gains in Americans' net worth, it remains far below its peak of $64.5 trillion before the recession began. That underscores the vast loss of wealth in the last two years.

Paul Goebel, director of the University of North Texas Student Money Management Center, says he thinks 2010 can be "a year of growth and opportunity for everyone" if we the not-too-distant past.

EXAMINE YOUR GOALS

What do you want to accomplish with your money besides just making more of it?

"Financial issues are, at root, decisions about what is important to us and what is not," said Thomas Murphy, a certified financial planner at TEMAA Financial in Dallas. "How we choose to spend our money should reflect things which are important and deeply felt, not whims or ego-supporting extravagances."

Tracking your spending, and analyzing your purchases, will help you shift your resources to what's important to you, he said.

Knowing where your money is going also will help you break wasteful habits.

Murphy suggested documenting every penny you spend for three months.

"That exercise in and of itself will give them the habits to permanently change their behavior," he said.

"They look at it and say, 'Did I really spent that much money on blah, blah, blah?' When they don't know where their money goes, they feel like they're not in control."

SET UP A SPENDING PLAN

"Give yourself an allowance with each paycheck," said Michael Miller, certified financial planner at Miller Premier Investment Planning LLC in Mansfield. "Put your allowance in an envelope and spend it on discretionary items such as dining out, entertainment and shopping. Once the envelope is empty, you are done until the next paycheck."

PAY DOWN DEBT

"Credit cards are great conveniences, but credit card debt is evil," said Mickey Cargile, a certified financial planner and managing partner at WNB Private Client Services in Midland, Texas. "You will never know personal freedom until you stop deficit spending."

Get reacquainted with using cash. When you're counting out dollar bills from your wallet, the price of an item hits home.

If you can't break the credit card habit on your own, card issuers are leaving you no choice. In advance of new credit card regulations that will take effect in February, issuers are raising interest rates, instituting fees and slashing credit limits.

You can't afford to max out your credit. It will harm your credit score and leave you without credit for emergencies, such as a job loss.

"The more debt you have, the less leverage or options you'd have when hit with a crisis," said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas. "If you've got an open $10,000 credit line, that may be one of the things that gets you through a crisis. But if you've got a $10,000 credit line that's maxed out, then not only do you not have access to that as money, but it's another obligation in addition to your prioritized expenses on a monthly basis."

BOOST YOUR SAVINGS

"The lesson for 2009 is that the stuff that your mama told you turned out to be true," Murphy said. "Spend less than you earn and put more money aside for a rainy day because a rainy day will come."

One convenient way to do that is to set up an automatic savings plan - from your paycheck or your bank account - so you don't get a chance to spend the money you'd save.

"Make sure that you have three to six months' worth of living expenses set aside in a separate account to take care of life's unexpected moments," Miller said. "If you are short, you should create a plan to restock your fund as quickly as possible."

HAVE AN EMERGENCY PLAN

"Jobs can end at any time," Cargile said. "Plan for the contingency of losing your job and surviving an extended unemployed period."

Be specific in your emergency plan.

"Plan for how you will immediately cut expenses as much as possible," Cargile said. "Cancel subscriptions and cable TV. Eat at home. To use a good Texas term, how will you hunker down?"

BE HONEST

"One of the hardest things to realize is that your lifestyle just can't be what it was before because you just can't afford it," Mark said. "If you've been touched by the recession, don't keep living like you were two years ago, because you will continue to add debt and stress to your life."

FOCUS ON LONG TERM

Many people bailed out of stocks in their 401(k)s when the stock market swooned. The market has since bounced back, and they missed the turnaround.

"People always get up caught up in the hype, so they react," Mark said. "If you've got a long-term plan you believe in, it should serve you in good times as well as bad."

TIPS FOR 2010

Here are some tips for developing a strategic plan for your finances in 2010:

- Set specific, realistic financial goals.

- Take control of your finances. Know how much money is coming in, how much is going out and where it is going.

- Create a spending plan for you and your family.

- Lay out a plan to shore up your savings.

- Manage credit carefully; pay down or pay off your credit card debt.

SOURCE: Dallas Morning News research

(c) 2009, The Dallas Morning News.

Distributed by McClatchy-Tribune Information Services.