So, you’ve made a New Year’s resolution to get a better handle on your finances – again. The middle of what might be the end of a long and uncomfortable financial recession may be the perfect time to finally face up to your financial picture, for real this time.

But, you don’t know where to start. (And, you may be afraid of what you’ll find.)

Take heart. The folks at the Rural Development Advisory Corporation, who run a Practical Financial Literacy Program that has helped hundreds of Orange County residents to regain control of their finances over the past year, have generously agreed to share the basics of their step-by-step guide to financial literacy.
It starts simply enough.

1. Make a budget.
Create a budget chart with one column listing all of your weekly or monthly expenses. Be specific and include expense amounts for cell phones, car payments, fuel bills and the like. Include less noticeable expenses like car fuel and pet care costs.

Then make an income column. Be sure to use your take home income amount, or “net” income, and not your “gross” income, since this is the money you will actually see in your hand after taxes and deductions are taken out of your paycheck.

Create a third column for “adjustments.” If your expenses are higher than your income, you need to list changes and reductions to your expenses in this column. Can you shop your auto or homeowners insurance for a lower rate? Can you take a defensive driving course and reduce your car insurance payment? These kind of questions will provide options to help balance your budget.

You don’t need to make it fancy, said Executive Director Alice Dickinson. “Just write it down on a piece of paper or in a notebook,” she said.

2. Identify the leakage.
Identify those areas where you can cut back on spending. “I buy lattes,” said Dickinson, offering herself up as an example.

RDAC’s housing director Faith Piatt described a coffee lover buying a latte at a coffee chain store (that herein shall remain nameless) at the cost of $4.17 per cup. After buying a latte on each day of a five-day workweek, the cost adds up to $20.85. Multiply that cost by 50 weeks in the year (minus two weeks of vacation without lattes) and the cost adds up to $1,042.50.
Compare this to the cost of brewing a cup of coffee at home, at 35 cents per cup. Multiply that by five days, and the cost adds up to $1.75. Multiply that by 50 weeks, and the cost adds up to $87.50. Total savings come to a whopping $955 per year. “That could be a car insurance payment or a vacation,” said Piatt.

3. Plug the leaks.
Take a hard look at what you can do without. Stop buying lattes. Make coffee at home.

4. Establish alternatives.
Look into finding cheaper sources of entertainment, clothing or housing, if need. Shop around for better rates for cable, cell phone and insurance coverage, among other services. Bargain hunt.

5. Make a commitment.
Take action. You owe it to yourself and your loved ones. Good intentions are not enough, said Dickinson.

6. Honor your commitment.
Stick to your guns and do what you say you’re going to do. It will be well worth the effort in the end. Bear in mind the process may require some patience. “Becoming financially literate may take some time,” said Dickinson. “Remember, you didn’t lean to read and write in a day.”

Piatt and Dickinson also advised to keep the following tips in mind:

Avoid “payday” loans
These are small, short-term loans with interest rates that can reach up to 400 percent or more, said Piatt. Other than requiring disclosure of rates and fees in writing, federal and state consumer protection laws do not contain legislation specific to payday lenders.

Read your credit card statements
In reading your credit card statements, you can learn important information about interest rates, changes of terms and find fees you may not be aware of.
Dickinson said that credit cards could be “double-edged swords.”

“You need them to establish credit, but improper use will harm your credit,” she said. “If you do use credit cards, don’t use them unless you have the cash to back them up – in other words, use them for convenience and pay them off each month.”

Get the family involved
Include the family in on the process and don’t be afraid to get the kids involved. “Kids can understand,” said Piatt.

To illustrate the point, she recounted how when her own tween-age daughter was given the choice between buying an expensive snack verses several lesser expensive snacks, which she could also share with her friends for the same price, the girl instantly chose to buy the cheaper brand.

Dickinson said most of us, from the Baby Boomer generation and on, are not willing to teach our kids how to budget and don’t care to explain the financial realities of the society in which they live. “Here in the U.S. we are guilty of sugar- coating it for the kids,” she said. “If the kids aren’t exposed to it, they can’t learn.”

Don’t close your old credit card accounts
Dickinson suggests to not close your oldest credit card accounts, since these will be the accounts that will contribute most positively to your overall credit report.

Keep the long-term goals in mind

“Your credit score is important,” said Dickinson. “But, it’s also important that you have good financial hygiene. If you can’t keep up with your mortgage payments, your credit score won’t matter.”

Remember – you are not alone.

The recession has forced many of us to take a financial reality check. According to the 2009 U.S. Foreclosure Market Report by RealtyTrac, a leading data provider on foreclosures and foreclosure markets, one in 417 American homes were in foreclosure last year. Locally, the numbers are even higher. “One in 208 households in Orange County in 2009 were in foreclosure,” said Dickinson. “Many people are in trouble.”

To find out more about RDAC’s Practical Financial Literacy program or its Mortgage Foreclosure Prevention Intervention program, call 524-HOME (4663) ext 25 – or e-mail stability@ocrdac.org.

By SHANTAL PARRIS RILEY
sriley@tcnewspapers.com