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Q. My husband and I have been wearing rose-colored glasses: During the last two years, when the market was booming, we felt flush. We bought a new house, a new car and charged our credit card to the max. We felt lucky, but now we realize that a lot of that wealth was on paper--and we're worried that we've taken on too much debt. We know we need to cut back, but where do we start?
Jean Sherman Chatzky, author of Talking Money: Everything You Need to Know About Your Finances and Your Future (Warner Business Books, 2000), answers:
A. These days, many people are in the same situation as you -- and the numbers bear that out. For one thing, credit-card debt is at a 20-year high. The good news is that it sounds as though you and your husband are on the same page psychologically. No one likes admitting that they're having money problems, least of all people who, by anyone's yardstick, appear to be doing quite nicely.
Right now, lowering your credit card debt must be your number one priority. You also need to take a hard look at how much money you have coming in, and where you want it to go. Think carefully about what you want, and listen to what your spouse says. Do you really want that luxury car, or would a smaller, less expensive model be just fine? Consider what you spend every day, too. Most of us hit the ATM on Monday, take out $100, and by Wednesday we haven't a clue what happened to it. This may mean you have to sit down and itemize -- right down to the latte -- what you buy each week. It may seem tedious, but it's the only way you'll get a handle on your spending habits.
Next, consolidate your credit cards. You need two credit cards, no more. One should be a general card that you put your everyday purchases on and pay off in full every month. Make sure you get some perk such as frequent flyer miles that you'll really use. For your second card, look for the lowest rate you can find. Use this card for any big purchases that you'll pay out over time. Cut up your department store credit cards -- you can't negotiate interest rates or a payment plan if you get into a bind. In time, as your debt decreases, you can begin to live within the budget you've created.
Q. My husband thinks nothing of buying the latest computer gadget or big screen TV without consulting me, but I'd much rather invest our extra money in the kids' college funds. He says he works hard and should be able to buy what he wants, and that I don't know how to enjoy my life. How can we reach a compromise?
A. Money is an emotionally loaded subject, which is why one partner often focuses on long-term financial goals while the other believes in the enjoyment that money can bring right now. It sounds as if your problem lies less in the arena of money management and more in the area of plain old communication. You can't put a lock on your husband's wallet, but you can communicate better about why you think it's important to save for the future. You need to find ways to compromise so you both feel acknowledged and safe. Recognizing up front the emotional underpinnings of spending is critical for every couple. Ask your husband why he needs to buy so many news things. He may say he feels he works hard for his money, but he may also say he feels he doesn't spend enough time with you. Or perhaps his parents used to spend freely when he was young so he's following a similar pattern. On the other hand, maybe his parents had very little and he felt deprived, so now he's making up for lost time.
Dividing your money into three accounts--his, yours and ours--will allow each of you to achieve your goals. You can even suggest that you designate any windfall, a tax refund, for example, as bonus money for the next electronic gadget that catches his eye.