Every year, getting out of debt ranks in one of the Top 10 New Year’s resolutions.

In the uncertain, and difficult, economic situation we have experience in the last two years, it will certainly be there again for 2010.

Poor spending and saving habits can be tough to break, but their correction is vital if you are to eliminate things like credit card debt and home equity loans. Many people who have, as a result of unemployment caused by the financial crisis, had to rely heavily on these, but 2010 is the year to make the decision to stop, and to take massive action to turn things around.

Here are some quick things that you can do to get out of debt in the New Year:

1. Set your goal: Give it power by writing it down and displaying it somewhere obvious, like on your refrigerator door.

2. Be honest: Acknowledge your debt

3. Identify your dream: buy a home, have retirement funds, pay for your children’s education

4. Share: Empower your family to be part of the cost-saving process

5. Get help: Consulting a qualified financial adviser should not be considered an expense. It is an investment. There may be free debt counsellors who can give you some initial advice, but a professional is needed for long term planning.

6. If you are behind in payments call your creditors. Negotiate a payment plan. The worst thing you can do is pretend that the problem doesn’t exist. If your payments fall behind, your creditors will assume the worst, if they have not heard from you

7. Cut back spending to essentials, food, essential clothing, shelter and transport. Remove snack foods and drinks from your life for now, and don’t eat out. Terminate your cable TV contract if you can, you WILL survive without it.

8. If you purchase lottery tickets, stop. If you smoke, stop. If you buy cappuccino every day, stop.

9. If you are able to walk to work by leaving home 30 minutes earlier, do it (good for your pocket and waistline).

10. Have your wages paid directly into your bank account, and only take out what you need as you need it. Have your mortgage and utilities automatically deducted from your account.

11. Find ways to make more money, either with a second job, or taking an inventory of your possessions and selling some. If you haven’t worn that dress/suit for 2 years, you probably won’t again, sell it online or via a garage sale. Uncluttering your life is very therapeutic.

It is so easy to make getting out of debt your New Year’s resolution and breaking the task up into small, bite-sized pieces, will make it one you can keep.

Getting Out Of Debt as a New Year’s Resolution is a post from: Smart Money Mindset.com

Making sure you get paid what you are worth can be difficult, especially if you have just been offered a great job. But don’t be shy, and remove the myths about salary negotiation from your brain, because if you don’t, they can prevent you from getting the salary you deserve.

I used these principles recently to get a friend from an initial offer of 2.8% to a 19% pay rise on a new position – yes, in the middle of a recession! That’s almost 7 times more! She was extremely disappointed with the first offer she received, but too polite to ask for more – until she talked to me of course! Please be aware of these myths, and don’t fall victim to them:

Myth 1: Aim for the highest salary

When you look at your life, you will probably realise that cash is not always the most important thing. Consider carefully other benefits, bonuses and quality of life that a position affords. The job with the highest salary might enslave you and leave little time for home, hobby or sport activities.

Myth 2: Employers don’t like negotiating salaries

Most employers have respect for a person who is firm in the way he values him/herself. There is no harm in justifying to an employer why you deserve more.

Myth 3: If you don’t indicate your expected salary, your application won’t be reviewed

You will sometimes find “expected salary” to be a requirement in job ads. By quoting a figure, be it too high OR too low, you can either eliminate yourself from consideration, or lock yourself into a salary that is below what you really want.

If you are qualified and meet all other criteria, employers will not ignore your resume because it doesn’t list a salary range.

Myth 4: There is no room to move

If an employer believes you are the perfect candidate for the job, and the offer on the table is below your expectations, it is rare indeed that they have no room to move. Exceptions are possible.

Myth 5: A “starting salary” is OK to begin with

Don’t fall for this one! Most salary increases are negotiated on your current wage. Accepting a lower “starting” salary, without any negotiation, will impact your negotiations for years.

Myth 6: Asking for less improves your chances

Few employers hire on salary alone, and his strategy can sometimes backfire by devaluing you in the eyes of the company, and actually decrease your chances of landing the job.

Myth 7: Agree to the offer ASAP

Don’t believe that if you don’t jump at an offer, an employer will rush to make the offer to someone else. Get the offer in writing, and if you have any doubts, take at least 24 hours before accepting. Understanding that you have room to negotiate will help you to get the salary you deserve – the first offer from an employer is rarely the last and final offer – salary negotiation is part of the process.

Know Your Value

Knowing your own value is one of the most important skills to have generally, but being able to realise it is even more important. Look at the value you add and expect to be compensated accordingly. If you are unable to get the compensation (monetary and non-monetary) you think you deserve there are always alternatives – you are more resourceful than you dare to let yourself think!

Salary Negotiation – How I Helped a Friend Get a 7 Times Larger Pay Rise is a post from: Smart Money Mindset.com

Sometimes life throws you a surprise… like being given two days notice that you’re booked in to give a lecture to 35 students at the London School of Economics! Which just happened to sell out in 2 mins… no pressure then…

So here’s the interesting thing, not that I had the lecture arranged – it was pencilled in but never confirmed – but that it sold out so fast. An email was sent to students, who won’t necessarily be sat by a computer checking email (like the rest of us at work!), and 35 people responded withing 2 mins.

The title of the session is “Recession-Proof Yourself”

And however much I’d like to think the interest was due to my dashing good-looks (ok,ok, no picture was sent with the email) it actually points to something more insightful – A lack of financial education and resources for young people.

Now these students will be the brightest of the bright, doing degrees in Economics, Management, Business and so on, but they will not have knowledge of some basic financial principles – because no-one’s taught them. I know, because after 4 years of financial training at university I was still £22,000 in debt and had no idea how to manage my money!

The other sad thing is that those who had tried to seek out financial advice were probably given what could best be described as average information, or even worse. For me the first big financial step I took was opening a current account and yes, taking advantage of the interest-free overdraft. And then being financially astute as I was, going to another bank and doing exactly the same thing! Yep, I had a £3,100 maxed out rolling overdraft the day I left uni.

Drug-Dealing and Debt Conditioning

I often talk about how debt is pushed in a similar way to drugs – starting with the “free sample” – and this is how debt is pushed to students with the interest-free overdraft. Before long as students we get conditioned to thinking it is perfectly normal to be thousands of pounds in debt.

Now these students will be the high-earners of tomorrow… who having been conditioned into debt-driven lifestyles at univeristy will continue to rack up increasing levels of mortgage, credit card and personal debt based on multiples of their increasing income. Without realising it they will pay thousands upon thousands more for their possessions than if they hadn’t use debt to finance their lifestyles.

So hopefully the lecture today will be a first step in getting these students to seek out better and more effective ways to manage their money. I’m not the only one talking about this so even if not with me, the lecture should hopefully give them a nudge in the right direction! I know I could have done with it when I was in their place.

Lecturing at the London School of Economics today, Interest-Free Overdrafts and Drug Dealing – Eeek! is a post from: Smart Money Mindset.com

In the lead up to Christmas we are always bombarded with sales messages. “Save 50% here!”, “Buy one get one free!”. These offers come to us with the promise of “saving” us money. Are you really saving money? Probably not!

It’s often the case that we end up spending, not saving as a result of these messages.

The reason is the Big “Saving Money” Scam – we are fooled (including fooling ourselves) into believing we are saving money by taking advantages of these offers. The reason is that we don’t realise there are actually three different ways to save money.

The Three Ways to Save Money

1) Wants-Driven Saving
2) Needs-Driven Saving
3) Cash Saving

1) Wants-Driven Saving

Ever seen a special offer that really grabbed your attention?! One like “60% off this plasma TV but only while stocks last!” “75% off this leather sofa – only for the next two weeks!”. You might already have a perfectly good TV and sofa but you don’t want to miss out on such a good deal right?

The fact is that the sales price is often just the real price or acceptable price to the retailer. For example have you have you ever heard of a sofa store where there isn’t a sale on?!

The sale price is often the price they need to make a decent profit. The law may have required them to sell that item at “full-price” for a time in some of their stores, but in reality they are happy with the sale price.

The reason this is important is because we are talking about “Wants-Driven Saving”. This is a saving on an item you are tempted to WANT but don’t really NEED. And what compels you to buy is the false idea that you are saving money in the future by buying the item.

Are You Realling Saving?
In actual fact you’re not saving money, you’re spending money – right now! Managing your money well relies on thinking about cash flow – this is a cash outflow from your monthly budget – not a cash inflow. This is a false or fake kind of saving, which will lead you to actually increase spending and most likely increase debt.

You are also being subjected to a sales trick called “creating scarcity”. The seller creates the sense that there is competition with others and that you may miss out on this wonderful deal since “the offer runs out soon!” or “all the items might sell!”

These purchases give us a momentary thrill, they make us feel good for a little while. And we quieten the little voice in our head saying “you’ve just spent money idiot!” by justifying it as “future savings” when nothing could be further from the truth.

The sad fact is that millions of people drive themselves into financial difficultly doing exactly this – all the while thinking they are being “financially smart”.

2) Needs-Driven Saving

Needs-Driven savings remarkably enough are savings based on items you NEED, not WANT. These are savings on items you would have bought ANYWAY, even if there was no discount or offer. For example this could be a two for one offer on groceries or a discount voucher for petrol.

These are real savings as you are reducing the amount of cash flowing out of your pocket – cash that would have flowed out anyway.

One of the best money saving tips is to focus on Needs-Driven Savings when you are being bombarded with savings offers. Filter through them and find the right ones.

For example my girlfriend was recently offered a card that gave 50% off at a lot of London restaurants, for a price of course. Now if we dined out a lot, and felt this was something that fitted under one of our needs, then the card might have been worth it. However interestingly enough the 50% discount didn’t apply on Fridays and Saturdays at most places, the days we were most likely to go out. And also we were able to get 50% off vouchers for most of our favourite restaurants anyway for free elsewhere – so for us that fell under Wants-Driven Saving and we didn’t get the card.

So Needs-Driven Saving does mean you save money. Now what to do with that cash you didn’t spend? Funny you should ask…

3) Cash Saving

This is what I would call really saving money. Taking money from your paycheck and putting it into a savings account. Why – because the cash is still there. It hasn’t been spent. It is earning interest. You have actually saved money which is now building on itself.

Part of cash saving can also includes paying down debt. This is because you immediately reduce your cash outflows when paying off debt. See my previous post A Guaranteed Profit On Your Money? It’s Possible!

So if you take the cash from Needs-Driven Saving and pay off debt, you not only save that cash, but also get a guaranteed return on it. Now doesn’t that all sound better than option 1 above?

The Challenge with Saving

The challenge for us is the balance between the three, particularly with Needs- versus Wants-Driven savings. For example what would you call saving money on expensive Christmas presents? Did you NEED to buy expensive presents in the first place? No-one’s immune to this by the way, myself I’m partially prone to spending on gadgets like the iPhone!

The answer is, as always, “it depends”.

It depends on your personal circumstances. If you are knee-deep in debt (usually because of Wants-Driven Spending!) then you will need to restrict yourself to spending on only the things you need, look for savings there, and focus on paying off debt. If you have more flexibility then spending on things you want isn’t necessarily a bad thing – so long as you don’t kid yourself into thinking you’re actually saving money… and so long as you are cutting unnecessary expenditure elsewhere.

Think about the last few times you were tempted by an “once-in-a-lifetime savings” offer? Did you really save money?

The Big “Saving Money” Scam is a post from: Smart Money Mindset.com

The sad truth is that nowadays the majority of us are living in debt. Having credit cards, loans, mortgages and hire purchase agreements means that the average family owes a staggering £25,000!

If this is you (and you quite probably owe even more money than this, it’s only an average remember), you’re probably wondering if you are doomed to be trapped in the debt cycle forever.

Living Free of Debt

Starting to think about the possibility of living free from debt and the worry that debts can bring is the first step, so well done for getting here! You are already starting to think with the right financial mindset and are no longer willing to be sucked dry by the loan and mortgage companies who are living rich on your hard earned cash. Be rest assured that paying off your debts is the wisest financial decision you could ever make.

Debt Affects Our Health

Debt has so many damaging effects on us and not just on our bank balances. The health costs of debt are huge! There are many well researched and documented studies on the personal effects of debt. From increased suicide rates and substance abuse, to higher levels of divorce as well as causing depression in our children. Can you really go on taking these kinds of risks with your health and the health of your family?

How We Get Duped

Are you aware that the majority of the money that you are paying out each month is not actually going on paying off your loan debts at all? That’s right! Most of what you are paying is interest on your debts with only a small percentage paying off the actual loan.

That’s how the financial companies dupe us and make millions, if not billions, of pounds each year by charging us interest, upon interest. Take your mortgage for example, which you might consider as a “cheap loan”. Over 25 years you will likely pay out more in interest than the original loan amount. If you move house or change mortgage provider frequently it’s even worse! At the end of 25 years you could have paid more than treble the initial loan amount!

Develop the Right Mindset

Clever of them – but we need to be even smarter. Make the decision to stop lining their pockets and start lining your own now. By making a commitment to paying off debt you can get out of the dangerous trap that nearly all of us have been manipulated into and start experiencing the freedom of living a life without debt.

Paying Off Debt, What You Need to Know is a post from: Smart Money Mindset.com

Like watching TV or movies? You could be programming your brain for financial suicide!

TV and movies are full of false values or beliefs, also known as “Memes”, that we pick up and believe in without even realising. Some of the worst are around money and wealth. By getting these into your head you could be sabotaging your financial success without even realising.

Movies Are Keeping You Poor!
Think about movies for a second. My favourite for this is Titanic (I’m not saying that’s my favourite movie by the way!).

“The Rich Are the Bad Guys”
Do you remember the dinner scenes? They show all the rich people being boring and stuffy, arrogant, and you get a sense of Kate Winslet (the heroine) being restricted, uncomfortable, and that the people around her are untrustworthy. And the main bad guy in the movie is here, her rich fiance.

“Poor People Have More Fun”
Meanwhile down below the poor people are partying like mad! Lots of smiling, fun, drinking, and a really warm and friendly environment, and our poor hero Leonardo di Caprio in the middle of it having the time of his life! The place our heroine would rather be.

Do you really think that’s what it was like on the Titanic? Where did you get that belief from? Who told you that?

Think about the movies you watch and you’ll find the above is usually true. There is a hidden message that being rich leads to unhappiness and being poor is somehow more honest and real, and even respected.

“It’s Romantic to Sacrifice Wealth”
And at the end of the movie what happens? Rose’s granddaughter and husband are spending thousands searching for treasure, the necklace with the huge diamond. And what does Rose do with it? Throw it in the sea?! So it can be with her dead lover?! How romantic?!

How about taking that diamond and giving it to her granddaughter so she can financially secure her and her descendants for years to come – so they never have to worry about money, paying for school, medical care if they get sick? Nope, it’s on its way back to Leo so he can do God knows what with it… because that’s the “right” thing to do? Give me a break…

Want To Be Wealthy? Don’t Watch Dallas!
If you watch a lot of television you’ll see the same values or beliefs within those. Take programmes like Dallas, Dynasty or even recently The O.C.

“Having Money Means More Problems”
In these programmes in the first episode everyone has money and all looks well on the surface… but before long the story lines take hold – like one character losing all their money due to a crooked business partner or accountant; kids out of control due to all the money their rich parents give them; those same kids taking drugs and needing to go into rehab; adultery; domestic violence; robbery; threats etc. etc.

What does that condition your brain to think? That being rich is all one big party? Not quite.

More like:

“Well if I get rich, I could lose it all, lose my wife/husband, my kids could become drug-addicted criminals, and people will come and try and steal my money”

… think about it, how many of those beliefs do you currently hold about becoming wealthy? What’s the conclusion?

“Well, maybe it’s better to have a little money, but not too much cause I don’t want to turn into an asshole and get my kids screwed up”

Really have a think about it – what beliefs do you have about becoming wealthy and where did you get them from? These beliefs are almost certainly holding you back from what you want financially.

Watching TV? You’re Committing Financial Suicide! is a post from: Smart Money Mindset.com

Save Money on Virtually Anything With The Top Ten Indian Negiotiation Tactics (TINTs)

Here’s my top ten list of the Indian Negotiation Tactics (TINTs as I call them) that I have picked up off parents, uncles, and random relatives I’d never seen before or probably will again…

I’ve used these and similar tactics to negotiate anything from £5 off a hat to over £100,000 off an investment property. The key is to take one tactic and try it out next time you are buying something, get comfortable using it, and then add more tactics as you go.

Of course you probably can’t use these tactics in Harrods (although I’d be interested to hear if anyone has!) but without doubt these will save you money.

10. Be a reluctant buyer

Approach the negotiation as if you’re not really interested in buying and just looking. Any whiff of keeness on your part and the price automatically increases.

9. Get them to go first

Never ever give your price first – even if they have a price tag get them to start the negotiation with a price. If possible get them to give you an already discounted price before the negotiation starts. A good line is: “What’s the best price you could give me on this my friend?” (add the my friend bit in there to make it harder for them to be hard-nosed with you!)

8. Flinch and Use Silence

When you get the price flinch, as if it almost hurts to hear that price, and at the same time say something like “Wow!” or repeat the price… then stay silent, even if it gets uncomfortable. The last bit is key!

7. Always ask for more than you expect to get

Always set your price lower than you’re prepared to pay. If you set it at what you want to pay and they accept immediately you’ve lost out on saving some money!

6. Smile and make it fun

Negotiation is a game and treat it as such. Always be smiling and friendly, joke and make it fun. It’ll make the process more light-hearted and harder for the seller to resist your demands.

5. Bracket

Bracketing is where you make a counter offer so that the average of the prices is really what you’re prepared to pay. E.g. If the price is £20, and you’re happy to pay £15, offer them £10 and let them come down.

4. Take up lots of their time

The more time you take up, the more energy and effort the seller has invested in the negotiation, and the harder it is for them to walk away without getting something back for all that time and effort.

3. Remove authority

Make it so that you are not the decision-maker. e.g. “I have to check with my husband/wife etc.” That way you always appear friendly and blameless for all the negotiation hassle

2. Ask for that bit extra

Even once you’ve got down to almost agreeing a price and you sense the seller won’t budge, ask for something extra to seal the deal that is not cash. For example if you’re buying a bed and sidetables, ask for a lamp for the sidetables so you can read at night.

1. Be prepared to walk away

And finally, but most importantly – in any true negotiation you have to be prepared to walk away. The moment you think you want what’s on offer and won’t go back your mindset will change, and the seller will pick up on this. Always be prepared to walk. Very often you get the deal just as you’re walking out the door.

Let me know what you think of these!

Save Money With Indian Negotiation Tactics! is a post from: Smart Money Mindset.com

I’ve heard these phrases so many times:

“My house is an asset”
“I’m not worried about my mortgage – I have lots of equity in my property”
“I can always sell if I get into trouble”

And I used to think the same way. That it was ok if I had a large mortgage, so long as I had equity in the property I was safe. I was wrong.

These phrases are based on some common misconceptions:

1) House prices will always go up
Maybe in the very long-run, but in the short-term they can fall and fall rapidly

2) All other circumstances will remain unchanged
The time when you get into trouble is usually the time when other people are getting into trouble, as well as the economy. This means just when you need to sell one or more of the following will be occuring: job losses; restrictions in mortgage lending; falling house prices; buyers holding back from the market; people restricting spending; interest rate increases (we have been lucky on this one but think back to the last recession); price inflation.

3) That you will be able to sell your home
Even at a discount, if economic circumstances have changed you will find it very difficult to sell and sell in a quick timeframe. As recent events have shown buyers can dry up, and even those still around will struggle to get mortgages at the level they need.

4) That things won’t spiral out of control
As you fall behind in mortgage payments charges will increase rapidly putting you in a even more difficult position financially. You will find it difficult to remortgage as your financial circumstances have changed, and your credit rating will be falling rapidly!

Here is a common sequence for repossession:

1. You get into trouble financially (job loss; injury; business collapse; personal or family member illness; divorce etc. – you only need one of these to occur)
2. You realise that your biggest financial outgoing is your home (mortgage, property taxes, insurance, electricity, gas etc)
3. You realise that you have no option but to sell your home and within 6 months or you will be repossessed
4. You need to sell quickly so you put it on with multiple estate agents at a small discount, hoping to get a good price
5. Viewers come, they are fussy (it’s a buyer’s market), even if they make an offer they cannot get mortgages, and cannot complete in the timeframe necessary
6. You become increasingly desperate and drop the price further, and further…
7. You run out of time. (By the way you still have plenty of equity in the property)
8. The bank repossesses the property, you lose your home, the bank adds multiple charges, sells your home at a discount at auction, allocates the remaining debt to you for the next 6 years, your credit rating is shot.

What you must realise is that cash flow is more important than equity when dealing with property, especially the home you live in. Here’s why: you can survive negative equity if you have the cash flow to service your debts (think of all the people who managed to keep their homes during the last recession), however you without cash flow it doesn’t matter how much equity you have in your home, you will be repossessed if you can’t pay your debts.

Even the tiniest debt, if unpayable, gives the lender the right to repossess.

In these ciricumstances it’s often professional property investors who are actually able to purchase and in the timeframe required. So even if you do manage to sell, and your equity saves you, you pay a heavy price.

The follow example is a deal a friend did recently:
Market Value: £300,000
Mortgage: £140,000
Purchase Price: £200,000

Now a £140,000 of debt on a £300,000 property isn’t much is it? But it is if you cannot service the debt.

The lesson here? Don’t rely on your equity to get you out of trouble. Pay constant attention to the cash flow position you are personally in.

Why The Equity in Your Home Will NOT Save You is a post from: Smart Money Mindset.com