"You Know You're on the Wrong Path"

That's good news—now you can take steps to get your finances back on track.

Question: I'm on a financial roller coaster. I'll go on a buying spree for six months at a time, telling myself that I'm relatively young and deserve to have nice clothes and a night on the town. Then I'm overwhelmed by guilt (and bills!) and live frugally until I dig myself out of debt. Then the cycle starts again. What can I do?

Suze: Have you ever driven down a highway and had the eerie feeling that you inadvertently passed your turnoff? When you finally pull off the road and seek help, you may discover that the exit you wanted is 20 miles back. While you may be irritated with yourself, you are also relieved. You know where you're going again. That's what you're doing now: You have acknowledged that you are on the wrong path. Now you just need to find the right direction.

Start by walking through your house and gathering up every item that you haven't used: shampoo, the sequined mules still in their box, the juicer and breadmaker. Now take out a calculator and add up the amount you paid for each of these objects you have never used but are probably still paying for. If you carry a credit card balance of, say, $3,400 with an interest rate of 18.5 percent and you pay just the minimum due each month, typically 1.4 percent, it's going to take you about 40 years to pay the debt.

I want you to call a nonprofit agency that will pick up everything, or load your car and drop the stuff off yourself. I know, you're probably saying, "Oh my God, I can't waste money this way! I will use that breadmaker!" But you won't, so do not put even one thing back. Instead, think about how all the stuff you have wasted money on will go to someone who will use it. You also won't have to face the clutter or the guilt every time you open a drawer. Even better, you can use the amount you tallied earlier as a deduction on your tax return in April. (Just be sure to get a receipt from the place you donate to.)

Next, I want you to start a savings program. Ask yourself, What is my dream? I don't care whether it's a trip to Italy, a house with a garden or retiring at age 38. Figure out how much that dream will cost and open an account at a good no-load mutual fund company—like Neuberger Berman (800-877-9700; www.nb.com), Strong Funds (800-359-3329; www.strongfunds.com), or the Vanguard Group (800-523-2566; www.vanguard.com)—specifically to fund it.

Now every time you want to buy something—anything, even dinner out—I want you to make two calculations. Let's say you see a party dress you want for $175. First figure what it will really cost you to charge that dress on your 18.5-percent-rate credit card over two years (in this case, $205). Now calculate how much not buying the dress will add to your dream fund: If you put that money into a mutual fund account, with an average return of 10 percent a year, you would have $280 in five years. Now, would you rather buy the dress or be that much closer to your dream?

Believe me, as hard as it is to get into the habit of saving rather than spending—of putting dreams for the future above present wants—once you start, you'll never want to stop.