Now days its hard to really know how big of a house or what kind of car we can afford.  It’s almost impossible to look at an auto ad and see the full price of a car… usually you’ll just see the monthly payment amount.  Almost all big ticket items are sold with monthly payment amounts, and that number always looks affordable.  Before you even begin looking at a home, an auto, a vacation club, new furniture, or anything that you are considering purchasing on credit, you need to know what you can really afford.  Look at the total price of any item you are thinking of purchasing, then add the interest if you pay it over the time that the lender is providing.  If that total doesn’t make you think twice about your purchase, at the very least, follow these basic rules:

Before you buy your first home, save at least 25% of the purchase price for a down payment and closing costs.  Then, make sure that your house payments will be less than 1/3 of your net income each year.  If there are two wage earners in your household calculate the amount on just one income.  When shopping for a new or used vehicle (and I always recommend used, but that’s for another day) Tell the dealer or lender that you want the price calculated so that the vehicle will be paid in full within three years.  If you can afford those payments, you can probably afford the vehicle you are looking at.  If it takes you longer than three years to pay off a car, it’s too expensive for you… look for a less expensive vehicle.  Everything else you might want to purchase on credit… except for cars and houses… if you need to make payments on it to own it… you can’t afford it.  Instead, save your money first, then pay cash. 

It is possible to live well on a single income, provided you’re willing to stretch it. By the time the typical two-income family pays for the basics—an average home, a health insurance policy, a second car to get Mom to work, child care and taxes—they have less money left over at the end of the month to show for it than single-earner families.  Spend some time and figure out the true value of your second income.  Start with the net annual wages of the lower paid person.  Then begin subtracting all the costs associated with that person working outside of the home.  A second car and car payments, gas, lunches out, clothing, child care, the additional taxes with held from both of your checks because you will be in a higher income bracket, etc.  Don’t forget the extra $10 to $20 you are asked to contribute frequently for a co-worker’s birthday or the office baby shower.  These seem to average out to one or more a month.  Remember, too, that when one of the kids gets sick, one of you will have to miss work to stay home with them… School or Child care workers won’t keep sick children.  You may be surprised at the results.  In most cases, a second working spouse contributes so little to the household income that it really isn’t worth it.  Once all your children are in school, a second income might be beneficial, especially if you invest all of it to pay for college… but until then… you can stay home and raise your own children without any financial guilt

So many people feel like a failure when they lose control of their finances and finally realize how serious their problems are.  They also think there is no way out!  15 years ago I was hopelessly in debt.  We made it out without bankruptcy. We used every opportunity we could find. We managed to repay a six-figure debt and established the beginnings of a fairly comfortable retirement account. There’s a way out for you, too. Stick with me. If you will supply the commitment and determination, you’ll keep finding the inspiration, motivation, tools and information you need to take back control of your finances and turn your money life around here in my blog and in our ministry web site.  http://www.newvisionsministries.com  

Many of my clients come to me thinking that I will tell them their only option is bankruptcy.  Bankruptcy is a very serious matter, not an easy way out. If you qualify it will impact your life negatively for a very long time. And bankruptcy does not represent a clean slate. It’s more like a 10-year jail sentence on your credit history.  No matter how strapped you are, try to avoid bankruptcy.

Do whatever it takes to build a safety net.  Start with an emergency account. Set a goal of $1,000 to begin with.  Go back and read every saving money and debt reduction tip in this blog.  Go to http://www.newvisionsministries.com and read everything there.  Contact John or Me for extra help if needed.  We have advised hundreds of clients over the past few years.  Most were able to get out of debt in just a few short years

If you think a bank, credit card company or any lending organization won’t lend you more than you can afford, You’re only kidding yourself.  Banks and credit card companies don’t care about you personally. If they keep your credit limits to what you can afford, they lose. They’re determined to grab as much of your money as possible through fees and penalties—on top of that big interest rate you’re paying. Many lenders are desperate to find customers who revolve balances that exceed what they can repay in a single month.  If you are only paying the minimums on your home, autos, and credit cards, you are what’s known as a revolver, and lenders LOVE loaning you money, because they will get more from you over the years than any other type of customer.
Take control of your own situation. In your heart you know what you can and can’t afford. Instead of saying to yourself, “It’s only $000 extra per month.  We can afford that”, look at the complete total of what you are about to purchase.  You’ll know then if you can afford it.