Managing Debt!

When it comes to managing personal finances, many of us hesitate to launch into what we anticipate to be a dull and grueling process.

Thankfully, personal-finance pundit Andrew Tobias, author of The Only Investment Guide You'll Ever Need (2005), -I'll include a link here- has condensed the procedure into three simple steps:

1. Destroy all your credit cards.

2. Invest 20% of all that you earn. And never touch it.

3. Live on the remaining 80%, no matter what.

Implausible as these steps may may seem, Tobias has a point - and many consumers seems to agree (ABC News). Credit cards are currently not as trendy as they once were, what with credit limit cutbacks, high interest rates and all the repercussions that come with owning one. Or three.

But let's get serious. I personally do not wield an expansive knowledge of budget management, but I know enough to recognize the call to "destroy all credit cards" as a bit of a stretch. Perhaps a more practical method would be to leave your credit card(s) at home--this way, the temptation to use them would be highly curtailed.

Besides, splitting the lunch bill with friends would be significantly less troublesome. None of this "separate checks" nonsense! Simply pay your share in cash, and save everyone--including the server--from severe headaches.

Speaking of avoiding difficult circumstances, I recently learned a lot from a good friend of mine. He was offering financial advice to a recently graduated high school senior deciding whether or not to attend UCI (University of California, Irvine). The graduate had already been accepted, but was wrestling with the fact that, not being a resident of California, he had to pay much more. He was toying with the idea of attending UCI for a year, and then transferring to a junior college if he wasn't satisfied. Giving me a wry look, my friend suggested attending junior college BEFORE a university. He proposed only the most appealing aspects of such a choice, focusing on cheaper tuition, housing, and transportation.

"It wouldn't make much sense for you to waste thousands of dollars, when you could transfer to any university in the country once you've completed your general education requirements," he said. Ultimately, I think he had the high school graduate convinced.

For step two, merely one simple phrase is necessary: "the magic of compound returns." 

I'm not yet a passionate advocate of this investment guide, but Tobias certainly knows how to make an argument. With the achievement of steps one and two, step three can come about quite painlessly. And then, by slowly scaling down your expenses and reducing spending will save you hundreds of white hairs in the future.

By Tiff Sun