Reining In Your Household Spending

The bad news keeps rolling in, forcing millions of Americans who still receive a paycheck to brace for a pink slip.

The U.S. jobless rate will hit 10% this year, the Federal Reserve forecast on Wednesday. Equally troubling, the Fed expects unemployment to stay high for several years.

“People who have lost their job or are afraid it could happen to them soon are looking for ways to cut spending and conserve cash,” said Avi Karnani, vice president of strategic innovation at LendingTree, an online mortgage loan aggregator.

Feeling less threatened financially is a key to elevating your spirits. There is a limit to how much you can control your job security. So bolstering your cash may be your best bet for boosting your morale.

“It also helps you pay your bills,” said Karnani, who oversees MoneyRight, LendingTree’s personal finance wing.

In your 20s or 30s, you should have one to three months of living expenses in cash.

Your cash buffer should grow by at least one month for each additional decade you’ve lived, he says.

The key to fattening your savings account is to budget, Karnani says. That’s how you’ll find items crying to go on a spending diet.

You’ll speed the process if you separate needs from wants. Dining out at fancy restaurants and shopping for designer label clothes are likely to go on the want list.

“Things you do strictly for pleasure or status are probably not essential,” Karnani said.

It’s also important not to slash everything that makes you feel good. After all, you’ll need strong morale to stick to your plan.

So even though every pundit on the planet has told you to just say no to that costly cup of latte at Starbucks, Karnani says, keep treating yourself. Instead, aim for less demoralizing cuts. Some big ones:

Credit card debt. Cut it. This isn’t the first time you’ve heard this, and it won’t be the last.

“If you are paying 20% interest, it can be a real drain,” Karnani said. “Plus, if you eliminate that debt, it can boost your credit score.” And don’t forget, that can make it easier to get credit in an emergency.

Sure, you’ve been told a dozen times to shop for a replacement card with a lower rate of interest.

A less familiar tack is to shop for a loan at an online peer-to-peer lending site.

P2P lenders can cost far less than credit card rates.

Rates at Prosper.com ranged from 4.5% to 34% on Friday. Also, turnaround can be fast. Prosper.com is considering cutting the maximum posting time for a borrower’s application, known as an auction, to seven days. Now it is 14 days.

A borrower can end the auction as soon as he gets offers for enough money from lenders. Curtis Arnold, co-author of “The Complete Idiot’s Guide to Person-to-Person Lending,” says he often does loans within 48 hours at Virgin Money.

Still, cutting an auction short means you might not get the lowest possible rate. Receipt of funds can take an additional couple of days.

Also, replacing revolving credit with a fixed-rate loan should boost your credit score, Karnani says.

It lowers your debt-to-income ratio. Since the loan has a payoff deadline, it makes you a better credit risk. And a fixed-rate loan is safer than an adjustable one.

Summer camp. Scale way back.

“You don’t have to ax summer camp completely,” Karnani said. “Almost every high school and community college has sports and arts programs for kids in the summer. They are a terrific option, which many people completely overlook.”

Entertainment. Revamp it.

“Taking a family of four to a movie theater can cost $50,” Karnani said. “And that’s before you buy popcorn.”

You’ve already spent big bucks to buy a big-screen TV. Make better use of it. A rental service like Netflix costs as little as $9 a month.

“You can see more movies this way,” Karnani said. “And get better popcorn.”

Or borrow your DVDs from the public library. They’re free and no doubt more educational. Or … shock! Horror! Check out a book.

Cable TV. Dump it, or at least cut it back. You can save hundreds of dollars a year by downgrading your cable service. You can get mainstream programming for free via a Web site like Hulu.

Watch shows on your wide-screen TV after plugging it into your wireless laptop. “You can get very easy instructions online,” Karnani said. “Heck, your little nephew can plug everything in in five minutes.”

Textbooks. Rent, don’t buy. Or buy used texts. “College textbooks can cost $1,000 a semester,” Karnani said. “You can slash that by using new online services.”

One is BookRenter.com, which posts prices often 50% to 80% less than buys.

Another: BetterWorldBooks.com. You can buy any book it has for $3.97 and free shipping.

When shopping such online sites, make sure the edition of a book you are considering will suit your needs.