Credit is so tight these days that people can’t borrow for those flat screen TVs anymore. So retailers like K-Mart are bringing layaway back from the dead.

You ever lay something away back in the day? I did — all kinds of things like games from the first Nintendo to clothes I wanted but ain’t have the cash for when I was in high school.

What’s the last thing you remember “laying away” and would you use it again now if you didn’t have the cash for something you wanted?

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Now for today’s post. Here’s five tips for managing your money during the downturn, from the National Endowment for Financial Education.

1.      Don’t borrow money to continue your current lifestyle. If your income has dropped or you think it is about to, now is the time to rewrite your budget. Income doesn’t match expenditures? Then it’s time to make some cuts and adjust.

2.      Avoid pulling out funds or taking a loan from your 401(k). Even more important, you should continue making contributions into it. If you have to cut back, at least continue to save the amount (or percentage) matched by your employer. Remember, that’s “free” money. If you’re nervous about the ups and downs of the stock market, consider changing your allocation strategy, but stay diversified.

3.      Even if you’re tempted by low interest rates, avoid borrowing against your home equity to fund current expenses. The last thing you need right now is more debt. Another reason to avoid this type of lending is that your home could potentially devalue as a result of the soft housing market.

4.      When the going gets tough, the tough turn to retail therapy and that is not a good philosophy in uncertain economic times. This would be an excellent time to re-evaluate your spending habits and avoid activities that cost money to make you feel better. Before shopping, make a list of only items you need and stick to it. Also, delay purchase decisions on anything other than routine items in your budget for at least 48 hours to be certain you need them. And remember, a diligent shopper is a smart shopper. Be sure to look for alternatives that are low or no cost.

5.      Avoid turning to credit for unexpected expenses while you have savings in the bank. Credit card rates are in the double digits, while interest on savings is in the low single digits. Why would you want to “give away” 15 percent or more of your spendable income to credit card interest? If you have not already done so, now is the ideal time to start to build an emergency savings. You never know when you’ll need it. Hindsight is 20/20, and many Americans wish they had done that.

I spent my week interviewing elderly people about how they’re dealing with the financial crisis. I heard some of the saddest stories, like the man whose health insurance payments have gone from $96 a month to more than $300 a month in just a few years, and the diabetic woman who lives on $600 a month and has to eat canned food instead of fresh fruits and vegetables which would help keep her healthy.

I also heard how angry they are at the government and younger folks for living beyond our means. Most of them lived on only a small percentage of what they made when they were working so they could save for when they’d need the money. It made me think and set a new goal: by next year I want to cover all my expenses on half my after-tax income, and save most, if not all of the rest.

Do you think you could live on only half what you make? If not, what other steps could you take to increase your savings?

I tried posting this earlier this week, but a ton of readers told me they couldn’t see the entire post for technical reasons. So I’m re-posting today:

Today’s post is courtesy of the ING Foundation, which did a survey about black women and money. Among the top findings were that  47 percent of Black women say it is difficult to have their desired lifestyle because of financial obligations to their immediate family;  71 percent say it’s “very important” to give money to their place of worship; more than half have loaned $500 or more to family or friends over the last year; and  68 percent of Black women buy what they want – in a good or bad economy.

Here are the eight tips they gave to black women on handling their own cash:

Saving Over Time Can Help Secure Your Financial Future

Black women’s sense of obligation to community and family is extraordinary and commendable. But when you’re pulled in so many directions financially, someone or something has to pay the price. It’s impossible to financially support your family and community over the long term if you’re not financially secure, so make sure every week you put some money away for yourself. 

Resist Impulse Purchases

One way to find money is to spend less on “nice-to-haves” like electronics, clothing and accessories, eating out and even those addictive coffee drinks. Being more mindful and thinking twice before making a discretionary spend can make a big difference in your wallet over time. By making deliberate and thoughtful choices about how you spend and save money, you truly can make your money work harder for you.

Use Credit Cards Sparingly

Leave your credit cards at home so you’re not tempted to use them on impulse purchases. Save your credit cards for major purchases that you’ve taken the time to consider.

Use an Automatic Saving Plan

Automatic saving plans make saving an effortless, seamless process because a set amount is deducted from each paycheck and put into a savings or mutual fund account of your choice.

Start With a Workplace Retirement Plan

With tax-advantaged workplace retirement plans, you can put money away for retirement and reduce your current taxable income at the same time. And many companies offer an employer match, which is essentially “free money”. 

Create a Financial Plan

Our research shows that a financial plan — even a simple one — strongly correlates to feelings of financial empowerment. The journey to financial security begins with a road map. Creating a financial plan focuses you on where you want to go and, just as importantly, what you need to do to get there.

Don’t Be Afraid to Ask for Help

Our research shows that Black women who use a professional financial advisor are more likely to have created a financial plan and feel more financially secure. To find a financial professional, ask family, friends and co-workers for references or go online. Then interview three to five potential candidates to determine which one is the best fit for you. Don’t be afraid to ask lots of questions and be sure to follow-up on their references.

Learn by Doing/Join an Investing Club for Women

Not comfortable engaging a financial professional but not quite comfortable to go it alone? Find an investment club in your community — many are women only — that’s compatible with your investment knowledge and experience. These can be a lot of fun — and a great way to learn the ins and outs of investing without feeling overwhelmed.

Today another reader needs help figuring out how to get rid of her debt quickly:

 ”I’m going to try to get rid of my debt in 18 months. I have $6,688.21 in debt that I’m paying (I have another loan that counts against my net worth that I took out for a family member, but she is paying that — however, I still need to keep enough money in my accounts monthly just in case she lapses on a payment).

So I got my payment plan from the CNN calculator you suggested. Doable. Hard, but doable. And I’ll be calling AMEX in a few months to see if they can lower my interest rates (which would helpl immensely). But here’s the thing — I want to build up my savings at the same time. I had a good chunk of change in my savings account, but emergencies, some vacations and some car work have whittled it down to just under $600. Hardly a nest egg.

 

How can I go about paying off my debt, while still saving money to get up to the three month (or six months) worth of salary that everyone suggests? Right now, I have my check direct deposited and have $75 taken directly out of the checking account and put into savings on my payday.

 

Any suggestions on what I should be doing? I just got inspired and really want to get my financial life in order — I am about to be 25 after all.” –TB

First, TB, it’s great that you’re trying to get your financial house in order early. Second, I wish I could’ve gotten to you first before you took that loan on behalf of the family member — it’s good to help family out, but somehow these things always end up being harder on the person who borrowed the money than on the person who’s supposed to pay it back.

As far as your debt, the most sensible thing is to put yourself on a longer-term debt diet since you have several goals want to achieve at once. The important thing is to get it paid off, quickly if you can, but ultimately just to get it paid off. If you try to pay it off too fast, you can put yourself in a bad situation with short-term cash flow by overextending yourself on debt payments.

I’ve been in that position: spending so much on debt payments that I was nearly short on bills. Not a good look.

The point is to pay your debt off quickly, but comfortably. Since your money’s divided in multiple places, you need to figure out a realistic budget under which you can make more than the minimum monthly payments to your credit cards and be saving say, at least $50 a paycheck. You should also be contributing to your 401(k), at least to the maximum percentage of your salary that your company will match. After that,  calculate how much more than the minimum monthly payment you can afford to devote to your credit card balance, then you can figure out how long it’ll take you to pay off.

Remember to budget for ll of your monthly living expenses, for stashing away money in your rainy day fund and to keep just a little bit of cash on hand for emergencies or to have fun with, so you don’t get too stressed out.

Good luck, and I hope that helps.

If you’re anything like me, the most nagging financial issue you have is credit card debt (click here to see my plan to get rid of it all).

Most folks think that it’s the credit card interest that keeps you in debt: buy something then pay only the minimum and eventually your balance balloons and you’re not paying down the original principle for years. But this story on MSNMoney.com shows how even if you make more than a minimum payment, carrying and using the card at all can keep you in debt for a long time:

“You’re not thinking clearly about the actual cost of things, because credit transactions skew how you view the money you spend. There is a vast difference between how it feels to pay $10 in cash versus $100 in cash (not to mention the difference to your wallet). But when you sign a slip of paper, spending different amounts feels similar…”- MP Dunleavy, MSNMoney.com

Put another way, carrying a credit card makes it easier for you to overspend because you don’t ever actually see the money you’re spending, unlike cash when the money actually disappears before you. And while the article was about credit cards, I’ve seen how using plastic can screw up your budget even when it’s a debit card you’re using. Those $5 and $10 and $20 transactions don’t feel like much when you just swipe, sign and walk away, but sometimes they’ve added up to hundreds of dollars I didn’t plan to spend.

So I’m trying something different in the next few weeks: I’m going to look at my budget, then withdraw only the amount of money I can afford to spend in cash, and try not to use my debit card at all. Using the credit card is already off limits.

Anyone else have any strategies they’ve used to master the plastic?

Everyone I know is paying off student loans. I’m fortunate enough to be making my payments with no problem but I did struggle with them in the past (when I was significantly more broke). But with the economy as foul as it is, more and more people are getting behind on their loans and even going into default. And those that do, according to this story in the NY Times, are finding out just how much of a hassle dealing with their lender can be.

“More borrowers may begin to discover the harrowing consequences of reneging on student loans in the current economy. Numbers of borrowers behind on payments and in outright default are rising for some types of loans, and the tight job market makes it harder for graduates to find jobs that let them pay off debts. At the same time, investors are pressuring lenders to raise revenue by minimizing losses. Investors also expect more revenue from those lenders that operate collection agencies.” –NY Times

At the end of the day that all means more phone calls from collectors and a more stressful life for people who fall behind, so do your best not to.

One interesting thing about the NY Times story, though: they feature a 38 year-old activist who is fighting the student loan companies over their tactics. The problem: he’s behind in his own student loan payments, yet quit his job because he didn’t get the raise he wanted, and also spends time and I’m assuming money on tango and salsa lessons. How’s that work?

After yesterday’s post about the need to pay off credit cards “Slim” posted a comment I wanted to respond to for everybody:

I totally agree about paying off the credit cards. I paid off and closed my credit card just this February 2008 after B of A would not reduce my interest rate. One thing I do not understand, why did my credit score DROPPED about 15 points after I closed the credit card and now only have my mortgage payment as outstanding debt. I have never been late one credit card or mortgage payments. It is like the financial world rewards you for being in debt!!!!!!

Slim, the reason your credit score dropped was because you made the mistake a lot of people do when they pay off a card: You closed it. How much debt you have as a dollar figure is just one of the things that goes into your credit score. Another part of it is your ratio of debt to available credit.

Let’s say I have three cards with $1500 limits. That means my available credit is $4,500. If I carry a $900 balance on each, or $2,700 total, that means I have a ratio of 60%, or that I’m using more than half the credit I have available to me.

Now, if I pay off one of the cards and close it, My balance goes down by $900, but my available credit declines by $3,000. That means even though I’ve paid off one-third of the debt, the credit agency still sees me using the same 60 percent of my available credit.

Another important factor is the length of your credit history. Basically, the longer you’ve had established credit, the more favorably that plays into your score. Close a card that you’ve had open for 10 years, and you could damage your score.

In the long run, the best thing is to pay off a card, cut it up if you have to, but keep it open.

Fortune.com has a really good column about what they call “the next credit crunch”. Since I know most of you aren’t about to click that link and read the whole thing through (even though you should), I’ll run it down for you:

(1) Americans’ incomes haven’t gone up in years (2) so we keep borrowing money, mostly through credit cards, to afford all the crap we want, (3) but credit is now as tight as it’s been in the country in decades so banks are about to cut the credit cord to many consumers (4) and in the end of lot of us are going to be screwed.

Get it? Credit card companies are starting to take big losses and that means they’re about to start raising rates. If you carry a balance, your monthly payment could jump. If you don’t have any savings and have been relying on your credit card for emergencies, think of how much more you could wind up paying off that debt in the long run.

Today’s a good day to get a piece of paper, and make a plan for paying off your cards and saving at least three months worth of living expenses as quickly as possible.

A reader asked for advice over the weekend on when its a good time to lend money to family and friends and more importantly, how to make sure you get the money back.

I have one rule when it comes to lending money to anyone, but especially to family in friends. Don’t.

Actually, the rule is a little more nuanced than that: I don’t lend any money to anyone that I know I can’t afford to get back. In other words, if I know I’ll be heated that you didn’t hit me back with that $50 you borrowed, then I just won’t lend it to you. Of course, if I loaned you $10 and you renege on a promise to pay me back, don’t expect to borrow money from me again, but some amounts are small enough that I’ll simply consider it a gift and not ask for it back anyway.

Also, you have to ask yourself who you consider family and “friends”. Here’s what they’re not: the third cousin you only hear from when the lights are about to get cut off (again) or the “homeboy” who’s really only your boy when he’s short on the bar tab but not when it’s time to settle up with you. I’ve been burned lending money before, but never for more than $100, which ultimately I didn’t miss, so my rule “works” (not getting that $100 back made me a lot more cautious about who I lend to in the first place.) I’m also loathsome about borrowing: I’m fortunate enough that I never need anyone else’s money for anything because I can take care of all my necessities myself.

Anyone else have any rules on lending cash to family and friends? What’s your worst “they didn’t pay me back” story?