Lessons from Rocky Year Change Consumer Behavior

Article excerpt

As 2009 winds down and you plan for a more financially healthy 2010, don't forget this year's key lesson. Free-wheeling, debt- hungry spending is out. Actively managing your personal finances is in.

That sea change in consumer behavior grew out of the worst economic recession since World War II, a prolonged downturn that ravaged savings and retirement accounts.

Granted, there are signs of improvement from a year ago. Some indications:

Retail sales rose 1.3 percent in November, prompting some to suggest consumers were ready to spend in earnest this holiday season.

Americans' net worth -- the value of assets such as homes, bank accounts and investments, minus debts such as mortgages and credit cards -- rose 5 percent last quarter to $53.4 trillion. It was the second straight quarterly increase.

But the recovery remains in its early stages.

Since the recession began in December 2007, more than 7 million people have lost jobs, ballooning the unemployed to 15.7 million.

And despite recent gains in Americans' net worth, it remains far below its peak of $64.5 trillion before the recession began. That underscores the vast loss of wealth in the last two years.

Paul Goebel, director of the University of North Texas Student Money Management Center, says he thinks 2010 can be "a year of growth and opportunity for everyone" if we learn from the not-too- distant past.

Examine goals

What do you want to accomplish with your money besides just making more of it?

"Financial issues are, at root, decisions about what is important to us and what is not," said Thomas Murphy, a certified financial planner at TEMAA Financial in Dallas. "How we choose to spend our money should reflect things which are important and deeply felt, not whims or ego-supporting extravagances."

Tracking your spending, and analyzing your purchases, will help you shift your resources to what's important to you, he said.

Knowing where your money is going will help you break wasteful habits, too.

Murphy suggested documenting every penny you spend for three months.

"That exercise in and of itself will give them the habits to permanently change their behavior," he said.

"They look at it and say, 'Did I really spent that much money on blah, blah, blah?' When they don't know where their money goes, they feel like they're not in control."

Set up a spending plan

"Give yourself an allowance with each paycheck," said Michael Miller, certified financial planner at Miller Premier Investment Planning LLC in Mansfield. "Put your allowance in an envelope and spend it on discretionary items such as dining out, entertainment and shopping. Once the envelope is empty, you are done until the next paycheck."

Pay down debt

"Credit cards are great conveniences, but credit card debt is evil," said Mickey Cargile, a certified financial planner and managing partner at WNB Private Client Services in Midland, Texas. "You will never know personal freedom until you stop deficit spending."

Get reacquainted with using cash. When you're counting out dollar bills from your wallet, the price of an item hits home. …