Our state of mind has a tremendous impact on our purchasing decisions because it controls what we perceive to be important. If your time orientation is focused on the short term, paying inflated prices won’t seem as bad as it really is. As long as you can get that wrapping paper before Christmas, or that turkey before Thanksgiving, who cares if it would cost half as much a few days later?

In the same way, the immediate gratification of a purchase can seem to be a much better benefit that it actually is when we’re locked into a short term time orientation. If we look at things with a long term perspective, the disadvantages of frivolous purchases (creating debt or missing out on savings) are much greater than the short term satisfaction of a shiny new toy.

Clearly, the key to making smart spending and savings decisions is to maintain a solid long term time orientation so we can see the impact of our choices on our long term financial health.

Tips for Maintaining a Long Term Time Orientation

1. Take the time of to look ahead - One of the main reasons people end up buying at inflated seasonal prices is that they fail to anticipate their seasonal needs and buy when prices are still low. A good exercise to avoid this is making a point of planning out your expenditures at the beginning of each month. Look at your calendar, starting with a week ahead and continuing several months out. What purchases will you need to make? When will prices be at their lowest? A simple thought exercise like this can be a great reminder to buy winter supplies in the summer and vice versa, which can lead to substantial savings.
2. Take the time to look back – Along the same lines, it is also beneficial to track and examine all your past expense to recognize where some weak points might be. Were you forced to buy those Halloween decorations at the very last minute? Did you overspend and neglect to add to your savings last month? Tracking how you spend is the best way to understand where your money going so you can take steps to improve your decisions.
3. Orient yourself correctly at the moment of decision making – Another great way to keep your priorities inline is to ask yourself before making any important purchase, is this going to benefit me in the long term? Would there be a better time in the future to make this particular purchase? Just asking these simple questions can help you disconnect from the emotion of the moment and recognize the key factors in your decision.

A Foolproof Guide to Avoid Soul Crushing Debt

Thanks so much to PickTheBrain for hosting me! Please head over and check it out, as I think it provides a good overview of the most important debt avoidance principles.

• New Study Claims Credit Card Rewards Take from the Poor to Give to the Rich (Man vs Debt) Shocking results there.
• Ignorance is the ONLY Reason You Continue to Accumulate Debt! (Enemy of Debt) And because the banks aren’t rich enough.

Investing:

• Benjamin Graham on Asset Allocation (Oblivious Investor) I’ve been meaning to read The Intelligent Investor forever.

Personal Finance:

• A Guide to Using Dry Beans for Cooking (The Simple Dollar) A great protein source, extremely healthy, and also tastes great.
• How To Get The Most Bang For Your College Buck (Moolanomy) More college students need to do a cost-benefit analysis. I’m looking at you art history majors.

Economy

• A few thoughts on the Fed’s quantitative easing strategy (CreditWriteDowns) Good roundup of analysis.
• PIMCOs Crescenzi on Quantitative Easing (Naked Capitalism) Hint: It favors the rich and could lead to another asset bubble.

The current debt of around $13 trillion is inching closer every day to equaling the national GDP, which is around $14 trillion. Compare this with an individual who makes $40,000 a year and has nearly $40,000 in debt. Clearly that is a lot of debt to pay off.

The knee jerk reaction is to say we should cut spending to the bare minimum to focus on paying off the debt as quickly as possible. But the situation isn’t that simple. Because of the financial crisis and ensuing recession, the country is in a painful slump with extremely high unemployment. If we cut spending hard now, we run the risk of further depressing the economy, which would further decrease tax revenues, making it even more difficult to dig ourselves out of debt.

This is the debate that is raging back and forth between economists and financial analysts in the news media. They’ve even been divided into two camps, the Stimulators (who say we should up government spending to jump start the economy) and the Austerians (who say we need to cut hard now to pay off the debt).

Think of the US as a terribly underemployed person with a high level of debt. That person has a choice. They can either cut their spending to the bare minimum in an effort to pay off their debt, or they can invest in themselves (things like nice suits for job interviews, career training, etc) with the hope that the increased investment will lead to higher paying job that will help them pay off the debt later on.

The right answer, of course, is that it depends. From the Stimulators perspective, cutting spending now would deepen an already deep slump, sending us into years of depressed employment and productivity. They think that the only way to beat the slump is to spend our way out of it. We can pay off the debt when the economy is humming again. In the case of the individual, these are the people that think all he needs is a brand new suit and a bit of training to land that awesome job.

The Austerians think that more spending won’t help, it will only push the problem down the road. For the individual, they think thT his job prospects won’t be helped by an increase in spending, so it’s better just to start paying off the debt now, rather than increasing an already large debt.

The entire question hinges on how optimistic you are about the US economy. Do you believe that all we need is a jumpstart to recover to pre-recession growth levels, or do you think that the economy has permanently changed, and no level of stimulus will bring us back to the good old days?

No one can say for sure, but let’s hope that the policy makers in Washington make the right bet, as a wrong decision on either side could result in years of unnecessary economic pain.

The majority of people forced to file for bankruptcy are Just Like You. They just aren’t as lucky.

Take for example, the fact that 50% of all bankruptcies are caused by medical bills. And these people weren’t already in debt before they fell ill. Over half of them were homeowners, and the same percentage were college graduates. Over 75% even had insurance at the time they became ill.

Or what if you unexpectedly lose your job? If you’re living more or less paycheck to paycheck, this means you’ll likely have to start living off credit cards until you can find another job. A couple months of this and you’re looking at a serious amount of high interest debt.

Unfortunately, there isn’t any way to completely protect yourself against unexpected hardship. What is possible though, is being prepared when it strikes.

The best way to be prepared is by building yourself a cushion in the form of savings and an emergency fund.

Don’t think that you’re doing OK just because all your bills get paid at the end of the month.

Don’t think that having a few hundred dollars left over means you deserve to splurge on something you want but don’t need.

A healthy cushion of savings, say enough money to cover your expenses for 6 months to a year, should be just as big a priority as making rent or your car payment. Start off by setting aside 10% of each paycheck in a separate account that never gets touched. Make it easy on yourself by doing this through direct deposit if you can.

Don’t get lulled into a false sense of security because everything is fine Right Now. Remember that most of us are one or two bad breaks away from financial disaster, but you don’t have to be.

Among the most important of the new rules is that companies are now forbidden from charging an upfront fee for debt settlement services. In the past, many companies would charge the bulk of their fee upfront before performing any services for the customer. This had the effect of increasing interest charges and late fees as customer payments went towards the debt settlement fee and creditors went unpaid. The new requirement that fees can only be collected as the customer’s debt is paid off should lead to superior service and results from debt management firms and fewer burned consumers.

Other new rules require companies to disclose important information such as:

• How long it will take to get results
• Total cost of debt settlement
• Any negative consequences that might arise, such as a negatively impacted credit rating

Another aspect of the rule requires that any bank accounts set up for the purpose of setting aside money to repay debts must be created under the customer’s name at an independent financial institution, where the customer can withdrawal money at any time. Previously, accounts were often created under the name of the debt settlement company and the customer relinquished all control.

The FTC penalty for breaking any of these rules is a $16,000 fine.

Although some companies in the debt settlement industry are claiming that these new rules will put them out of business, most support the new regulations, believing they will be most damaging to shady competitors. Some are also saying that the new rules should be applied equally to all debt settlement companies, not only for-profit firms.

Overall, the new laws should be beneficial to both consumers and the debt settlement industry, as they ensure that customers receive a beneficial service that helps them eliminate debt at a reasonable cost.

Read the official FTC statement.