With all of the news coverage about the federal deficit and the impact it has on the economy, ‘sequester’ has become a commonly used term in the media. The word means to ‘set apart’ or ‘segregate’ and describes the law of sequestration that was recently implemented; mandating cuts to defense and domestic spending. It came about when the deficit super committee failed to deliver an agreeable way to cut the deficit. Many programs are affected, with previously authorized funds being ‘set aside’ and prohibited from being spent. Could the same strategy be used with your personal finances?
Enacting Personal Sequestration
The federal sequestration is an excellent example of a tool that consumers, who find themselves in the same troubling situation, can use to help resolve their debt. Runaway spending is the root cause of most people’s financial problems and too many Americans are trying to live like the rich and famous without thinking about the damage they’re doing or that their lifestyle unsustainable without adequate income. In addition to this troubling change in attitude is the reality that very few Americans save for the future and have little or insufficient funds for their retirement years.
The purpose of putting a personal sequester in place is to prevent a financial crisis and stop your debt from getting out-of-control. In essence, a personal sequestration will be a promise to yourself to follow a newly designed budget that includes cuts that you normally wouldn’t make so that you spend less and pay down your debt faster.
The key to establishing a budget with a sequester in-place is to draw a diagram of expenses, noting areas that are non-essentials and those you could live without temporarily – or are willing to give up forever. For a personal sequester to work, you need the discipline to stop spending on non-essential items and be willing to spend less on everything else. Things to consider cutting back on or eliminating include:
- Restaurant and Carry-out Food
- Gym Membership
- Quit Smoking/Drinking
- Use store and off-brand merchandise
- Air-conditioning/heat settings
- Landline Phone Service
- Cable TV
Limit Credit Card Spending
Credit card spending should definitely be included in your personal sequestration plan. There’s no doubt that credit cards offer convenience and are a necessity in some circumstances, providing an excellent way to pay for large ticket items with the added benefit of purchase protection and extended warranties. Unfortunately, credit cards are often misused to the point of excess, with interest accumulating at a rate that makes paying them off difficult. Limit their use to emergencies until your debt has been paid off. Afterwards, limit your charges and pay off the balance entirely each month.
Commit to Saving!
Another option to consider isn’t directed at a particular expense but a more general way of saving. This way of sequestering has been suggested for years as a way to increase personal investments. Pay yourself first! Put aside a nickel or dime for every dollar you spend, or as investment advisers suggest, take a small percentage right off the top of your paycheck. For many people, it’s much easier to save money when it never reaches their hands. Even small steps will help improve your overall financial health.
Living a sequestered life is sure to have a a positive impact on your finances, but what you may find out is that you’re just as content living with less. What you thought was essential to your happiness before – may now seem like a detriment and an unnecessary stress. Those temporary cuts could end up being a permanent lifestyle change that will not only make you more financially secure – but happier.