Higher pay may not solve debt problems

By Amy Lindgren

We're in the second month of the new year and just a few weeks past the frenzy of unbudgeted spending in which many of us engage over the holidays. By now the bills have come due, in more ways than one.

Some of us are finding our clothes don't fit as well as they did before all the festive gatherings; others are feeling the pinch in our paychecks.

It's time to put things right, before you get used to carrying around those extra “love handles” of debt.

If a careers column feels like a funny place to read about budgeting, consider these seemingly unrelated points, gleaned from recent news stories:

  • Of those who used credit cards last December to purchase gifts, a significant number still have credit card debt from the 2004 holiday season.
  • Depending on how pay increases are measured, most Americans have had either no raises or no effective pay increases after adjustment for inflation since 2003 or earlier.
  • According to the U.S. Department of Commerce, the personal savings rate for Americans in 2005 was negative for the first time since 1933. This means that we not only didn't save money but also actually spent more than we made - dipping into our savings, borrowing from banks or using our credit cards.
  • According to a recent survey conducted by Salary.com of more than 13,500 workers, 37 percent of the respondents said they would look for new work this year because they are being underpaid. In fact, the survey revealed, only about a fifth of that group actually are receiving less than others doing the same work in other companies. Apparently, four-fifths of the people in this survey who think they would make more elsewhere wouldn't.

I could go on. There are dozens of ways to make the point, which is simply this: A whole bunch of us are spending more than we have.

Further, a significant percentage of us think that we'll be able to earn our way out of this mess, even though economists tell us that inflation is moving faster than our pay.

To add to our self-delusion, some of us think the problem is that employers are not paying us what we're worth.

Even if this is true, it's not the point. The real question is whether another employer will pay more for the same set of services. If the answer is no, then the issue of fairness takes a back seat to the issue of cash flow: Can you make ends meet on your salary?

On a personal, quasi-political note, let me say that I do not like the turn our national economy is taking. But I am a pragmatist, and I recognize that responsibility for each household budget still lies with each household.

Further, I am a career strategist, and I understand the relationship between financial health and career development.

A worker who is in debt has very little freedom of movement, career-wise. When you are free of debt, however, it is easier for you to consider taking time off to retrain, to start a business or to explore a new field of work.

So where is the light at the end of this tunnel? You know the answer: If you are in debt or have inadequate savings, you must take action.

One step indeed may be to find a higher-paying job. But beware. Unless your debt is related to a one-time crisis, such as a layoff or medical issue, chances are your spending habits are the real culprits. Higher earnings will not solve the problem unless the extra income is immediately directed to debt and savings.

Whatever master financial plan you develop for the year, consider incorporating these five small steps. They won't solve the problem, but they will point you in the right direction.

  • Make a weekly contribution to savings. Even $10 a week builds equity.
  • Cut 10 percent from groceries and eating out. For most people, it can be done simply: no desserts or alcohol in restaurants. Substitute generics for brand names when shopping.
  • Pay cash for optional major purchases. Furniture and electronics are two types of items that never should be put on credit.
  • Borrow or rent rarely needed items, such as special tools. Never purchase things that aren't used more than a few times a year.
  • Pick up a part-time job to pay off credit from the holidays. Vow to eliminate the debt by April, then put aside cash each month for the next holiday season.
    • Eleven months to go. Stay focused, and, by next New Year's, your financial picture could be much improved. It's worth the effort.

    - Amy Lindgren owns Prototype Career Service, a career consulting firm in St. Paul, Minn. She can be reached at alindgren@prototypecareerservice.com or 1071 W. Seventh St., St. Paul, MN 55102.

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