Give yourself a financial check-up

Let's get down and dirty about an American pastime - using credit (or debt) to expand net worth.

Before we got into the jam we are currently in, it was routine for people to use credit as leverage to obtain personal or real property. This was manageable for some because they were employed, they had rising income potential and interest rates on credit cards were stable. This is not the case today as many are painfully aware.

Here is what I would like for you all to do. Give yourself a personal financial check-up that requires you to lay out all of your outgoing expenses on a budget worksheet. These worksheets can be obtained from many places online like Financialplan.com or download from Microsoftoffice

.com.

Take your time and be accurate on the worksheet, because it will provide you with a cash-flow analysis that will help you find ways to reduce your spending. After completing the worksheet, check each and every credit card, line of credit or loan for the interest rate and compounding features. Knowing how much of your payment is interest is very important in reducing your overall debt levels.

Many credit cards have upped their interest rates to as high as 32 percent and compounding is monthly. That means that much of your payment may not be going to reduce your actual principal balance and you are just paying interest to the bank each month.

Look at your home loan as well. Often if there is no prepayment penalty, your bank will allow you to pay biweekly instead of monthly. This will substantially reduce the time you pay on your loan. Also, if possible, you can make partial payments or principal only payments. You will find these options on your loan payment coupon. If you are young and still getting a nice tax break for the interest on your home loan, then you should be concentrating more on reducing consumer debt instead of your mortgage.

Personal loans, car loans and credit cards are not tax-deductible items, so you need to pay them off as soon as you possibly can. Look at the interest rates on your loans and either consolidate to a lower interest rate or use zero interest credit cards and transfer high interest balances to them for payoff.

Plan on having your home loan paid off at the time of your retirement. There are calculators online or you can ask your bank to help you figure out how much to pay each month in order to accomplish this goal. This credit crunch we all find ourselves in needs to be a wake-up call for all of us to watch our spending, defer purchases until we can pay cash for them and plan for the future.

If you are the sole breadwinner and do not have adequate insurance coverage, you need to get the coverage. If your job has no future, you need to retool your skills for the jobs that will be available in the next several years. If you have not put aside a portion of your paycheck for a rainy day, you need to start now.

It makes me very sad to see people losing their homes and jobs right now, especially if some of the pain could have been avoided by being more financially aware. You may think that there is little that you can do to change your circumstance right now, but there is always something you can change, even if it is only your attitude.

This recession will end one day, but the lessons it will teach you can be invaluable in the future. Now get going and make sure that the next recession (and there will be another one) will not be as financially devastating to you as the one we are currently in.

• Carol Perry can now be found on Facebook. Log in and tell me how this recession has personally affected you and if you have made any changes to ensure your financial future.