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Buying&Selling

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How to save for a house

By Ellen James Martin
Ellen James Martin
Syndicated columnist Ellen James Martin covers the complicated financial and lifestyle issues facing anyone who buys, sells or finances a home.

A couple in their mid-40s have lived in a cramped city apartment their whole married life. Yet in their dreams, they own a cottage in the suburbs with blooming flowers and a fenced yard where their young daughter could romp.

Despite a combined salary of more than $150,000, this pair has found it nearly impossible to save for such a home. To understand why, they went to see Sally Palaian, a clinical psychologist who specializes in helping people with money issues. She identified the primary problem as their impulsive shopping habits.

“The woman is an IT professional who can’t resist spending more than $500 a month on clothes. And her husband, who works for a health care company, feels compelled to buy the latest and greatest electronic gadgets,” says Palaian, who’s helping the couple devise a plan to curb spending and save for a modest house.

Palaian, the author of “Spent: Break the Buying Obsession and Discover Your Truth Worth,” has worked for more than a decade to help such couples as the above rein in spending.

As Palaian notes, overspending isn’t a moral issue. However, when short-term gratification becomes a barrier to financial progress, it can become a significant personal problem.

Here are a few pointers for would-be homebuyers with a weakness for impulsive shopping:

– Identify the triggers that cause you to make unwise purchases.

Palaian says one of the first steps toward management of shopping impulses is to recognize what prompts you to overspend.

For instance, she says that when tired or sad, many people turn to online shopping as a mood enhancer. Others seek immediate gratification from the momentary thrill of a good sale at a brick-and-mortar store.

Once you’ve identified the situations and items that make you susceptible, it’s time to find other coping strategies, such as finding substitute activities that feel gratifying without breaking the bank. She recommends that compulsive shoppers seek to identify other, non-monetary “pick-me-ups.”

“Instead of going out to shop for entertainment, maybe you’d enjoy listening to music, taking a walk in the park or dropping by to see friends,” Palaian says.

– Create and follow a spending plan until you get on track.

Many people think that keeping a budget as a laborious and needless task. But for those who must control spending to reach a big financial goal, it’s an essential step to managing outflows.

“People who control their expenses have set aside funds for such intermittent costs as dental care and car repairs,” Palaian says.

There are several free or reasonably priced programs to help you track and plan spending, including Mint (www.mint.com) and You Need a Budget (www.youneedabudget.com). But personal finance specialists say a pencil-and-paper system is often your best starting point, especially if you’re new to the budgeting process.

“The advantage of a paper system is that it’s very concrete, which helps a lot of people,” Palaian says.

Judy Lawrence, a budget coach and author of “The Budget Kit: The Common Cents Money Management Workbook,” suggests that as a first step you look through your checking account and credit card statements. Then write down what you’ve spent for the last three months, breaking out expenses into two broad groupings: mandatory and discretionary.

Mandatory costs include such items as car payments and child care expenses. Discretionary costs include clothing outlays and restaurant tabs.

“Don’t be afraid of having a spending plan. This is simply a way to control small expenses now so you can savor bigger pleasures later,” says Lawrence, who offers money management tips on her website: www.moneytracker.com.

– Wait until your shopping impulses fade before you buy.

Are you a compulsive shopper who gets a kick from making purchases, but later regrets buying a lot of non-essential stuff? If so, Lawrence suggests you try what she calls “the 24-hour rule.”

When going shopping (for anything but food and other essentials), leave your cash and credit cards at home. Make your selections, but give yourself at least one full day to decide which items are truly essential and then return to the store to purchase only these.

“Some people simply need a cooling-off period before they buy,” Lawrence says.

– Watch your gift and holiday shopping.

When it comes to gifts and holiday purchases – which can be driven by emotion – Lawrence advises clients to be especially cautious.

“Some people give large gifts because they want to feel loved or appreciated. But this practice can seriously compromise a savings plan. In addition, big gifts can make the recipients feel very uncomfortable, particularly if they can’t afford to reciprocate,” Lawrence says.

Before you buy any major gift, Lawrence recommends you write down how much you can afford and then use the “24-hour rule” to stay within your self-imposed limit. Also, watch out for emotional reactions that could cause you to exceed your gift-giving limits.

– Give yourself visual reminders of a home-buying goal.

Although homeownership remains a paramount objective for many people, Palaian says it’s easy for them to take their eyes off the prize when spending temptations beckon. That’s why she urges wannabe homeowners to give themselves visual reminders to stay on track.

“Go through magazines to find an image of the sort of house you want and clip this to your credit card. That should help you pause before making an impulsive purchase that could threaten your savings program,” she says.

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