5 steps to total financial control

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the ongoing quest of the Women in Redevery other Wednesday in Dunleavey's column on MSN Money.

Many of you probably were ambushed by the holidays and spent way more than planned. That's why January is the ideal time for our nationwide Take Total Financial Control campaign.

Say it with me, people: TTFC.

Forget New Year's resolutions (though here are some good ones). This is motivated by post-holiday regret. Pure and simple. A year ago, my husband and I participated in only one Secret Santa (for his family) and got a couple of gifts for my parents. And we still spent $403 -- exactly $203 more than we'd budgeted.

And that kind of budget blowout is our financial Waterloo in a nutshell. It's the root of every financial mistake, big and small. It works like this:

• You decide how much to spend based on the reality of your bank balance.

• BOOF! There's a tiny aneurysm in the financial lobe of your brain! You ignore reality and spend whatever the hell you want.

• The next thing you know, you're one of the grim statistics about how Americans are totally in debt and have saved only 87 cents for retirement.

OK, where do we begin?

TTFC starts by following some classic financial advice -- and actually doing it this time. Good intentions are useless. Resolutions are just the first step. You have to take action.

• CUT. UP. YOUR. CREDIT. CARDS. YOU. FOOL. The First Law of Money Dynamics states that if you have plastic, you will use plastic. At the very least, stop carrying anything but a debit card and leave the credit cards at home, where you can't find them. Pay for it now or learn to say no to yourself. Meditate on the fact that by 2030, retirees will be short about $45 billion a year, according to the Employee Benefit Research Institute -- because they're spending too much now.

• Get real. After working with the Women in Red, I see people making the same mistake over and over: They believe their money problems will be solved by someone or something else, somewhere down the line. So let's get one thing straight: You're not going to win the lottery or marry the Sultan of Brunei. Get over it.

• Start a spending plan. Budgets can be tricky, so for 2008 implement the simpler 60% solution. The Women in Red have been struggling with it (read about our approach) because the task of keeping your committed expenses to 60% of your gross income is challenging. But this plan will get and keep you saving.

• Set up separate accounts for saving. The way Carole got herself to follow through on her savings plan was to set up two extra savings accounts: one for the short term, one for the long term. It didn't cost her a dime to set them up. The only way you're going to save those chunks of money is if you have a separate, special place to put them -- one that is not linked to your debit card.

• Make saving automatic. Beth resisted the idea of using automatic transfers to help her save. "I want to feel like I can do this myself." What? Only savers save. If you're not a saver, raise your hand -- now use it to pick up the phone and arrange for automatic transfer forms to be express-mailed to your home or office, so that 10% is transferred to your new short-term savings account and 10% to long term every single paycheck. If you can't manage 10%, start with 5% and build up to it. Then get a copy of David Bach's "The Automatic Millionaire." It's a great book.

The secret TTFC weapon

OK, so that's the classic advice. Now for the cutting-edge stuff. Ready?

Your favorite group of financial crusaders has been trying software. Microsoft Money software. Why?

• We get it for free.

• Microsoft wants someone to write about their software. (Microsoft is the publisher of MSN Money.)

But I'm a journalist, and so I just want you to know that Brice also has used Excel to monitor her spending, and I use both Money and Quicken. I leave it to you to decide what sort of financial software works best for you, but you can't TTFC without it.

(I will now get angry mail from people who manage their money on paper just fine, thank you. And if you really can juggle all those statements and documents and receipts, God bless. Keep going.)

Continued: No more hiding

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