Note: Below is an article/post submission adapted from the new book “Save Wisely, Spend Happily,” which offers the collective advice of 125 money professionals to give people the tools they need to make managing their money less intimidating.  See more at: http://www.360financialliteracy.org/Save-Wisely-Spend-Happily. This piece, by CPA Leonard Wright, offers several great tips on how to prioritize our needs and wants to help reduce debt.

These days we are inundated by news stories of how bad life is. But is it really that bad? While no one can discount that times are different, the reality is that there is nothing wrong with expecting a greater standard of living. The problem comes when that standard of living is based on excessive debt. Each of us should consider the benefits of having less debt in our lives and gaining control over how we live.

We have used the following steps with extraordinary results over a relatively short period of time:

1. Recognize the need for change. Remember, denial is not a river in Egypt.

2. Plan for your success. Don’t be a deer in the headlights. Budget. As boring as that sounds, a number of tools are available that can provide daily updates to foster your success and offer exceptional debt payoff strategies. Each can be set up over coffee and your budget categories created over dinner.

3. Identify needs and wants. Eliminate all wants and re-evaluate your current circumstances. Whether you are spending more than you receive in salary, or less, the trick is to get out of debt as quickly as possible. A $50,000 credit card debt at 19.99 percent interest is over $800 per month. If just the interest payments are channeled into a 401(k) plan, you will build considerable wealth over the years. It’s time to build your wealth, not the credit card company’s!

4. Establish a safety fund.The appropriate amount will vary based on your facts and circumstances; generally between 3 to 12 months of expenses in cash. Business owners tend to prefer larger amounts of cash on hand.

5. Recipe for any raise: 1/3 to pay off debt, 1/3 to cash safety fund, 1/3 to wants. You have been successful, reward yourself! Take some of that money and do whatever you like!

6. Dot the i’s and cross the t’s in your financial life. Experience shows that the biggest catastrophes are sudden unforeseen circumstances—a fire that sweeps through town, a car accident that results in a permanent disability, or any number of problems that pop up uninvited. Make sure your homeowner’s policy reflects code upgrades and replacement costs, that you have adequate life insurance, disability income insurance, and long-term care cover- age, and that your automobile insurance policy is adequate.

7. Carry a red credit card in your wallet. It will reinforce that you are going into debt every time you use it. Are you purchasing a need or a want? Use cash for wants.

8. Enjoy life! The world does not come to an end without a $5,000 vacation. An America the Beautiful Pass may be purchased for $80 per year. It is even a better deal for seniors: a $10 fee for a lifetime. You can’t beat that! Research shows that we appreciate experiences more than tangible purchases. A quick experiment will demonstrate how true that is. Look down at your shoes. Do you remember how they felt the first day you wore them? Probably not. Now reflect on your last good vacation with your family. You see my point.

Leonard Wright, CPA/PFS
San Diego, California