Money Management: It’s You vs. Them

Contributing Author: Gentle Heron

When you think about managing your finances, you have to understand that it is you against everyone else. No, I don’t mean you vs. the tax man or the government. I don’t mean poor vs. rich. I mean you vs. those who already have a financial plan and goals, and the discipline and motivation to achieve those goals. By that I don’t even mean your neighbor who has better financial literacy than you do. I mean… professional marketers. They want you to spend your money on their product, whether it will do you good or deplete your wallet. That doesn’t matter to them, but it should to you!

So how do you start improving your financial situation?

Look Carefully At What You Spend
Most people do pretty well keeping track of about nine-tenths of what they spend. Typically these are larger items for which you have credit card or checkbook records. (You do keep those records, don’t you? And look them over each month?)

If you use a debit card, you should also record those purchases in your checkbook, so that you can reconcile your bank balance at the end of the month. Do you pay cash for a latte on the way to work? Use coins at a snack or drink machine in the cafeteria? Tip waitresses or cab drivers? Perhaps you need a little notebook to jot things down on all these smaller expenditures. That way you will have a much better handle on your spending patterns. You will find lots of helpful tools from the National Endowment for Financial Education in their resource library. then search by topic.

It may take you a few months to get used to this record keeping, but it will be worth the effort, because then you can…

Make a Budget
A budget is really just a spending plan. It can be as simple as a pen-and-paper list, or can involve spreadsheets and specialized software. Use whatever strategy works for you, but plan how you will spend your monthly income.

Start by looking at necessities. List what you must spend for:

• housing (rent or mortgage),
• transportation (include upkeep if you own a car),
• utilities (electricity, water, propane, telephone, trash, etc.),
• food,
• medicines and medical costs not covered by insurance,
• insurance payments (renters or homeowners, medical- often paid yearly rather than monthly),
• loan or other debt payments,
• carers, etc.

Next list non-necessities, such as entertainment expenses, hobbies, etc.

Are there obvious places you could save some money?

Also, if you come up short at the end of the month, your budget plan will help you realize which bills must be paid (you have to have electricity and water, so pay that first) and which might be let slide til next month (although credit card debt piles up).

Plan to Save
A sad truth: The US is the only industrialized country with a negative savings rate. This means we are spending more than we make!

Why do you need to save? For the proverbial rainy day. That means emergencies as well as the expected future.

One good way to start saving is to set aside any unexpected income, such as presents, bonuses, or winnings. You weren’t expecting that money, so you won’t really miss it if you sock it away instead of spending it. You will still be getting more than you had before, because what you save now earns interest! But if you can, leave the interest in your savings account to allow it to compound, or earn even more interest next time around.

Savings should be a category in your budget. Even if it’s a small amount you set aside each month, doing so will add up over time. And the sooner you start saving, the more you will have when you eventually need to tap into it.

Make Saving Easy
Put your savings goals in writing. Establishing and prioritizing short- and long-term, goals, printing them out and posting them in a prominent place will make them concrete and help motivate you to achieve them.

Plan to save a little at a time. Sometimes the savings goal seems too big to accomplish. If you want a DVD player priced at $120, that’s a lot of cash to think of all at once. Somehow, ten dollars impacts your emotions less than $120, and it feels possible to save $10 a month even if saving up to $120 seems out of reach.

Open a separate bank account for your savings. Put a small amount in it each month. Don’t look at the balance every month (unlike your regular checking account that you should keep a close eye on). At the end of the year, your $10 a month stashed away will total over $120 because of interest it will have earned.

And you can even make savings fun by making your own decorated savings bank. If you are saving for a vacation, decorate a box to stash your “spare” coins in with images of the destination.

Looking at the pictures of the beach or the Eiffel Tower will be a useful motivation to spend less and save more. Those dimes and quarters will add to what you are saving in your bank account.

Don't Cut Out - Cut Back
If you have habits that impact your budget, such as buying fast food for lunch every day, ordering in pizza or Chinese a couple times a week, or eating out every weekend, or buying Starbucks every day on the way to work, or hitting the Red Box every other day, consider cutting back. Maybe packing a sack lunch on Mondays and Fridays, or limiting yourself to one night a week of takeout, or going to a restaurant only every other weekend, or skipping Starbucks on Tuesdays and Thursdays would be a reasonable compromise.

Talk yourself into it. “I’m not missing out on frappuccinos. I had one yesterday and I’ll have one tomorrow.”

Curb impulse buying. Do you spend a dollar for a can of pop because you go past the machine on the way back from the restroom? Opt for the water fountain instead. Do you plug a couple of quarters into the newspaper vendor you walk past on the way to the bus? You can read the same news online.

Try bargaining with yourself. If you buy a treat, put the same amount that you spent into your savings. You’ll be surprised that it’s easier than you thought to start cutting that expense down to a more reasonable size.

Find the Freebies/Cheapies
Do you often hit the Red Box for entertainment? Consider a free library card, then getting DVDs from the library.

Do you phone your distant family or friends regularly? Use Skype instead of your phone. It’s free if the other person also has Skype.

Love going out to the movies? Check matinee prices instead of going at more-expensive prime time.

Consider buying store brands at the grocery. Many are made at the same plants as the name brands, just have a different label on the can or box.

Plan a "stay-cation" and explore local free activities and venues.

Get Organized
Keep all your financial documents in order. How you do it does not matter as much as that you do it somehow.

When bills arrive, be sure they get opened immediately. File them all in one place, in the order you must pay them. If they are auto-paid, write the amount in your checkbook so that you can include it in your accounting.

If you prefer to mail payments in, write the mail-in date on the bill’s return envelope, right where the stamp will go. That way you’ll know when to insert the check and send it off. Be sure to mail payments at least 7 days, preferably 10, before the actual due date for proper credit.

Another quick trick to be sure you are paying all your bills: Write the name of bills to be paid each month above the transaction records, and cross each off as it gets paid (and recorded). That way if you have one or more remaining on the list at the end of the month, you’ll know you’ve forgotten (or lost) the bill, and can contact the company before it is too late.

Consider setting up a separate email account for your financial statements and bills, and it will be easier to keep track of everything. You can also set calendar alerts for key dates such as dates various bills are due, dates for benefits and insurance open enrollment periods, and tax preparation deadlines.

Understand Credit and Use It Wisely
Credit is great. Not all of us have saved enough for large necessary purchases or for emergencies. But we tend not to think of credit properly. When we buy something on credit, whether that means using a credit card or taking out a loan, we are spending tomorrow’s money today.

One way to think about credit is to be sure that the value of what you buy with credit will outlast the pay-off period.

If you buy fast food with a credit card and aren’t paying off that card monthly, is the value of the burger and fries really worth the added expense of the interest you are charged?

Another way to think about credit is to remember that credit companies make money from the services they extend to you. And they will hassle you to get that money back from you. However, if you are not able to meet all your bills some month, pay the necessities (utilities, rent, etc.) first and let the creditors wait. They will pressure you to pay up, but really it’s to their advantage if you are late, because you will just end up owing them more. Do try to pay minimum balances, though.

Drastic Steps May Be Needed
If you really can’t make ends meet, you may need to take more drastic steps.

• Consult a financial advisor.
• Get a second (or first) job, or do piece work or odd jobs.
• Get a roommate or find a cheaper place to live.
• Use public transportation.
• Quit using your credit cards… for anything… until you pay them off.

Control Your Cash Flow
Sooner is always better than later to start taking steps toward your financial well-being. Take the marketers’ hands out of your wallet. Spend less than you earn. Get your finances under control by watching your spending, increasing your saving, and using credit carefully.