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Contributor

Gail Cunningham serves as vice president of membership and public relations for the National Foundation for Credit Counseling (NFCC), Inc. based in Washington, D.C. During over two decades in the industry, she has provided one-on-one financial counseling to thousands of consumers, and reached tens of thousands more through hosting television shows related to consumer education on cable and network television, as well as writing a weekly financial education column that appeared in multiple newspapers and online sites. She has been a featured financial expert for the nation’s top media outlets, including: NBC Nightly News, Good Morning America, the New York Times, the Washington Post, CNN, National Public Radio, USA Today, Newsweek, Forbes, Smart Money, MSN Money, Bankrate.com, the Associated Press, FOX Business Network and Bloomberg News.

National Foundation for Credit Counseling

Excessive Financial Optimism Can Be Dangerous

Piggy bank

The December poll hosted on the National Foundation for Credit Counseling (NFCC) website revealed that more than half of the respondents, 56 percent, predicted they would be in a better place financially at this time next year. This response rate tripled the next highest category, where 18 percent of respondents indicated their situation would remain about the same as it is this year.

Financial optimism is a healthy sign, but it’s going to take more than hope, more than a New Year’s resolution, to make financial success a reality. People need to guard against financial amnesia, the affliction of too quickly forgetting the financial mistakes and pain of the past. One way to do that is by having a financial plan. Although the future can’t be predicted, consumers can protect themselves from financial unknowns by making smart money decisions today.

Financial control starts with financial awareness. New Year’s resolutions typically involve getting out of debt, but the basic step of creating a spending plan is rarely on anyone’s list, as many people don’t want to face the financial facts. Continuing to ignore current spending patterns can prevent a person from identifying and addressing the very reason that debt reduction is not achieved. 

NFCC encourages consumers to take the first step toward debt reduction by building a 2014 financial plan, including the following often forgotten or ignored areas.  The result will be a comprehensive and realistic budget, moving the goal of debt reduction closer to becoming a reality.

  • The unexpected. It’s usually not the daily routine expenses that wreck people’s budgets, but the emergencies. Prepare for these by socking away 10 percent of each paycheck into a rainy day fund. At the end of a year, it will total more than one month’s income, enough to cover most short-term emergencies.
  • Long-term savings. Protect against serious set-backs such as job loss. Even though the unemployment numbers are improving, no one is immune to job loss. If the unthinkable happens, bridge money will be needed to help manage daily expenses and existing debt obligations. Without it, people frequently resort to living off of credit cards, often amassing an unmanageable amount of debt. Experts recommend having a minimum of six months income as a cushion. Since it takes quite a while to build up this amount of money, now is the time to start saving toward this goal. 
  • Known periodic expenses. Birthdays, anniversaries, holidays, vehicle tags, and quarterly insurance premiums are examples of expenses that occur at the same time each year. In spite of being able to anticipate these expenses, many people neglect to set aside the money necessary to satisfy such events.  
  • Household and vehicle maintenance. Things are going to break, and usually at the worst possible time. Without a plan to cover the expense, people are left with poor resolution choices: Take money from a higher priority such as the rent or mortgage, thus compromising that category; charge the expense and add to an already burdensome debt load; borrow from family or friends, which is awkward and potentially puts the relationship at risk. 
  • Travel. Whether it is a family vacation, an out-of-town funeral or wedding, or sporting events for the kids, traveling costs moneyTry to anticipate as many of these events as possible, and work the cost into the budget.
  • Major purchases. Buying a home, purchasing a vehicle, remodeling the house or that long-awaited state-of-the-art entertainment, are examples of expenses that need to be considered and planned for.
  • Charitable giving. Being generous is a virtue. However, being generous to a fault isn’t. Review previous giving patterns to estimate 2014 donations.
  • Health insurance choices. Recent changes will potentially have a major impact on a spending plan.In addition to medical insurance, account for anticipated dental and prescription drug needs in the budget.
  • Investing. Time is money’s best friend, particularly for those with a long time horizon. Regular, disciplined investing is a critical part of long-term wealth building.
  • Debt reduction. Instead of allocating minimum monthly payments into the budget, set a date by which all current credit card debt will be eliminated. This step will free up money to go toward satisfying goals such as saving or investing.

The likelihood of being in a better financial place at this time next year starts with the decisions we make now. Although there are things outside of our control, planning today protects against tomorrow’s uncertainties.

Consumers can learn more about managing their overall finances by visiting the Sharpen Your Financial Focus website, www.SharpenToday.org, or calling toll-free 855-3-SHARPEN (855-374-2773) to schedule an in-depth financial review with an NFCC member agency.

The NFCC December poll question and results are below:

At this time next year, I predict that my financial situation will be

  • Better = 56%
  • Worse = 17%
  • About the same = 18%
  • No idea, as the economy is too unstable for me to make a guess = 9%

Note: The NFCC’s December Financial Literacy Opinion Index was conducted via the homepage of the NFCC website (www.DebtAdvice.org) from December 1-30, 2013, and was answered by 1,134 individuals.

The National Foundation for Credit Counseling (NFCC), founded in 1951, is the nation’s largest and longest serving national nonprofit credit counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services. NFCC Members annually help millions of consumers through more than 600 community-based offices nationwide. For free and affordable confidential advice through a reputable NFCC Member, call (800) 388-2227, (en Español (800) 682-9832) or visit www.nfcc.org.  Visit us on Facebook: www.facebook.com/NFCCDebtAdvice, on Twitter: twitter.com/NFCCDebtAdvice, on YouTube: www.YouTube.com/NFCC09 and our blog: http://financialeducation.nfcc.org/

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Contributor

Gail Cunningham serves as vice president of membership and public relations for the National Foundation for Credit Counseling (NFCC), Inc. based in Washington, D.C. During over two decades in the industry, she has provided one-on-one financial counseling to thousands of consumers, and reached tens of thousands more through hosting television shows related to consumer education on cable and network television, as well as writing a weekly financial education column that appeared in multiple newspapers and online sites. She has been a featured financial expert for the nation’s top media outlets, including: NBC Nightly News, Good Morning America, the New York Times, the Washington Post, CNN, National Public Radio, USA Today, Newsweek, Forbes, Smart Money, MSN Money, Bankrate.com, the Associated Press, FOX Business Network and Bloomberg News.

National Foundation for Credit Counseling

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