Americans are known to be excessive. We build big houses, drive big vehicles, buy fancy clothes …. and accumulate big debt. Hopefully, the next generation can learn from our mistakes and take measures early to control their debt and excessive spending.

Spending should not be too much of a problem since money will be harder to come by making budgets tight. Education will be the key to keeping debt under control.

Controlling debt and developing strong money management skills is a matter of focused planning. Plan how you will spend your money. Most people get into trouble by spending money that they do not have and have not planned for. Luxury items, gifts and things like vacations that we want but cannot afford. Instead of planning, we grab that credit card and decide to worry about it later. Habits for spending start early, while we are still children, mostly because we are not taught money management. By college those bad spending habits are impressed and affect our lives well into our later years. The cycle then continues into the next generation.

It is almost impossible to live debt-free; most of us cannot pay cash for homes or college educations. But too many of us let debt get out of hand. Ideally, experts say, your total monthly long-term debt payments, including your mortgage and credit cards, should not exceed 36 percent of your gross monthly income. That is one metric mortgage bankers consider when assessing the creditworthiness of a potential borrower.

Good spending habits and money management skills should be taught as early as possible. Here are a few guidelines that should be learned and taught:

• First, pay down the balances of loans or credit cards that charge the most interest while paying at least the minimum due on all your other debt. Once the high-interest debt is paid down, tackle the next highest, and so on.
• Build a cash cushion worth three months to six months of living expenses in case of an emergency. If you do not have an emergency fund, a broken furnace or damaged car can seriously upset your finances.
• If you just pay the minimum due on credit card bills, you will barely cover the interest you owe, to say nothing of the principal. It will take you years to pay off your balance, and potentially you will end up spending thousands of dollars more than the original amount you charged.
• Make a budget. Think of writing a budget as a financial blueprint for financial freedom. Without a written expression of where we want our money to go on a monthly basis many of us are given to impulse buying or excessive self-reward, either of which can lead to less money to pay the bills and to save.

  Be honest with yourself about what is important to you and what you may be able to live without. Your budget should include monthly bills like rent, auto payments and insurance but also entertainment or fun cash.

• Borrowing for a home or college usually makes good sense. Just make sure you do not borrow more than you can afford to pay back, and shop around for the best rates.

Once you have the basics down you can find your way to building personal wealth. Only by controlling debt can you build wealth. Teaching our children these things now is imperative. There are several online websites to help teach children about controlling debt. But the best way by far is to let them take the financial reins for a few months and see how it directly affects their lives.

They should be involved in everything from paying the mortgage or rent to planning the shopping list for groceries. Then take that list to the store and try to stay within their budget. Life lessons like these will last much longer than any interactive website. Kids need to experience it.

In the end, the next generation is already starting out with a huge amount of debt that the last few generations have accumulated. The best thing we can do to help them is lay the foundation to good spending habits and wise life choices.

If your looking for another great read on how to start educating your kids about money, check out this article over at Mrs. Money Merge.

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