Wes Moss: The joy and agony of ‘economic shutdown’

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Q100’s Bert Show recently invited me to share my thoughts on financial resolutions for the new year. I talked about the importance of maxing out your 401(k), building an emergency fund and actively working to reduce your monthly spending.

But when Bert opened the phones, listeners only wanted to hear about one thing: Getting out of debt. So I shared my simple-but-demanding system I’ve used on occasion to achieve personal money goals. I call it “economic shutdown.”

During an “economic shutdown” you don’t spend one dime more than required to meet your needs. But first:

Budget: Figure out how much income you have after taxes. Then, write down everything you spend on a monthly and yearly basis. In order to get control of your money, you have to know how much is coming in, how much is going out, and where it’s going. A “sorta budget” in your head won’t get the job done.

Set goals: How much debt do you want to pay off this year? How much do you want to add to your emergency fund? How much do you need for that down payment on a house? If that goal requires more money than you can wring out of your budget by trimming existing spending, it might be time for “economic shutdown.”

The plan

Housing: Move in with your parents and pay zero or minimal rent. If that’s not possible, you get a roommate – or two.

Food: Pack lunch and eat breakfast before you leave for work. Cook dinner at home – affordable meals that make good leftovers. Wal-mart and Target are tough to beat for the best deal on groceries.

Clothing: Buy only what you truly need to look presentable in work and social situations.

Entertainment: No dinners out, no trips to the movies, no vacations, no expensive nights on the town. Cancel cable TV and Netflix. This is a great time to catch up on your reading or invite friends over to watch that classic movie on DVD borrowed from the library.

I can hear you now, “Weeees, how long do I have to do this?” Answer: Until you’ve reached your goal. But that might be sooner than you think.

For example, Jake and Lucia are 27 and have been saddled with credit card and student loans since college. Their debt totals $35,000. They have a household income of $75,000, but they’ve barely put a dent into their debt. Their checking account balance rarely tops $5,000, so the idea of putting 10 or 20 percent down on a home seems nearly impossible.

Jake and Lucia could go on like this forever. Or they can go into “economic shutdown” and be debt-free and on their way to having a down payment saved in just over a year! That’s one year of pain and sacrifice to avoid years and years of economic malaise. It’s ripping off the Band-Aid quickly instead of pulling it off slowly.

What drastic measures have you taken to cut spending and reach your goals?

– By Wes Moss, for Atlanta Bargain Hunter

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3 comments Add your comment

scooby-doo

January 16th, 2012
10:54 am

We budget everything and keep track of what we spend from gas to groceries. We set a monthly limit for our groceries that we try to stick with. Your monthly grocery bill (which can include everything from medicines to paper goods to batteries to that new music CD you threw into your shopping cart while walking around Walmart) is the one thing you have some control over because there are a lot of items you don’t need that can add up very quickly in one month. People tend to buy things without thinking, “Do I really need that?” Most of it’s junk food you can do without or the impulse buying when you see a bin full of $5 DVD’s or the next new electronic item. If you’re that type of person do this: try talking yourself out of it next time using a little “self dialogue”. It’s a good way to bring yourself down from your “high of unconscious spending” especially when you realize, “Oh yeah, I’m $35,000 in debt!” You can also simply stay out of stores and off the internet and let your spouse do the shopping. You really need to find in yourself a committed restraint for spending if you want to get out of debt and start some serious saving for the future! I’ve never had to cut up my credit cards. Just form a budget and get everyone in the household to stick with it!

Andrew Norman

January 17th, 2012
1:03 pm

These are all good. I find a lot of people get hurt with those $5 daily expenses – coffee, tea, something cute and inexpensive – they add up.

$5 per day is $1825 per year in AFTER tax dollars – so that’s about $2500 gross income – and when applied to something else – the gross loss in benefit is $5000.

All from $5 a day – skip the Starbucks next time.

Ole Guy

January 18th, 2012
5:33 pm

These are all very good issues, Mr Moss…budgets, plans, goals, etc. However, please understand that 1) many of the financial problems out there are SELF-ENGINEERED, SELF-INDUCED, and have become a structural part of the lives of many who have never had to really make tough choices. When economic difficulties were sending smoke signals od pending doom over the horizon, these people figured those signals were for others; not for them to disrupt an otherwise neat life.

They made their beds…now they must lie in them!