I’m not a financial expert by any stretch of the imagination. But whenever I read an article about personal finance, I always feel like saying duh, I knew that. So I thought, maybe I know a little more than the average person. If so, maybe I should share. So here we go.
You cannot run away from numbers. You might have survived school without learning much in your math classes, but out here, if you don’t have enough to go around, you NEED math. You need to know some addition, subtraction, and some if-this-then-what calculations. And know how to do them on the fly.
You are not going to get a million tomorrow my shelling out your tens today. It takes pennies to make dollars. Think about it. Deny yourself that nice t-shirt today, if you are saving for a suit tomorrow. If you end up winning the lottery, you’d be happy. If you don’t you’d still be happy.
You are most likely going to need a spreadsheet of some sort. Because you need to know how much you have in your checking account at all times. And your balance from your bank is hardly up to date at any given moment. Same thing for credit card accounts. Here is mine (xlsx / pdf). Or you can use one of the online financial management tools like mint.com.
Have a savings account as a back-up to your checking. Even if you don’t know how much is in your savings account, know how much you have to withdraw when you need it. This is your cushion. If it’s zero, you need to be that much hawkish about your checking account balance. If nothing else, this will help keep you from those nasty NSF fees. And speaking of fees…
Bank fees, credit card fees, overage fees, speeding tickets, parking violations…fees would kill you. Avoid them like the bubonic plague. Yes you can. All you need is to be organized, prepared and vigilant about your finances. I used to get parking tickets like you won’t believe. Until I started keeping quarters in my car and not taking any chances, not even to run in somewhere for a minute.
Your rate is not locked in by the industry. Shop and compare prices for everything you buy. Insurance, car repair, gas, phone company, etc. You know the Geico commercial, “15 minutes could save you 15% or more? It’s true not only for Geico. You would be nicely surprised to see the wide range in quotes you get. I went from paying $1600 for 6 months of car insurance to under $900 – In the same period with the same driving record. And I’m going back to the market next time I’m up for renewal.
You are not in a race with the Jones. Just because your best friend has it doesn’t mean you need it. Some of my friends have expensive cars I would like to have. But when I’m in the market for a car, it’s not this car or that car, it’s a car. You may need a car, but nobody really needs an Escalade.
Make a shopping list. I had a salesperson at a clothing boutique I frequented once tell me, “You always know exactly what you want whenever you come in here”. I looked at her like duh, what other way is there to shop?
Know, or at least have a very good idea, what you want before stepping foot in a store. Grocery or otherwise. If you must, don’t be shy, make a list and in the store cross it out as you pick up items. Then shoot straight for the cashier as soon as you cross out the last item on your list.
Home and car aside, don’t buy it if you can’t pay it off in say 6 months or less. Be very careful with credit cards. Yes, they are convenient and come in handy when you need a bridge between paychecks. If I can’t afford to pay it off in 3 months or less, unless my life or health depends on it, I don’t get it. When I was in college I ruined-I mean RUINED-my credit history thinking I could afford it just because I could afford the minimum payment. Minimum payments are not set to help you pay it off; they are set to maximize how much the bank can get from you.
10% off your purchase could cost you tons of money. For a reason I don’t quite understand, department store cards have the highest interest rates. They are almost always over 20%. So say you spend $200 at a store, and you let the cashier talk you into “saving 10% just by opening an account with us”. Lucky you, you saved $20! Unless you write a check for the $180 in 25 days, you are going to end up owing more. And God help you if you decide to stretch out that payment. In one year, your $200 dress is now $240 (at least!).
Get a computer (with Internet), Netflix and cook. Going out is the most expensive habit we all have. From gas to wear and tear on your car, to whatever you end up buying, soon as you step out, you are out few dollars. You don’t have to be a recluse but you gotta know when you should and need to go out. If you need to go out because you are bored, walk to your nearest attraction. I love parks and busy corridors.
Allowance yourself. Even if it’s $50 a paycheck, get that cash and put it in your pocket. This is perhaps the best way to keep from always pulling out the credit/debit card. Remember, every time you pull out a credit card, you are spending more than you are paying. And this will help you to limit your miscellanous spending to your allowance amount.
Every couple needs His, Hers and Our accounts. No two people have the same spending habit. And since finances are the number 1 cause for divorces, the less entangled you can make this the better your chances of staying together. You cannot have completely separate financial lives (you are married!) but you can create some independence.
Bills, vacations, daycare, private school fees, eating out as a family etc comes out of “Our” account. What she does with the money in “Her” account is not my business. What I do with “His” account is not her business. As far as deposit into the accounts, since seldom both couples earn the same, do this by percent of earnings. Choose a percentage that makes sense, and can provide enough money in “Our” account to meet your family’s needs.
In my family “Our” account gets 75% of our income. She is left with 25% of her income to buy more shoes than she can fit her toes and fingers in, and I…hell I don’t know what I do with my money. Seriously.
**Don’t forget to adjust for expenses-such as health insurance-that may come out of one person’s paycheck.
Curb the “emergency” international calls. (This one is for immigrants, for that I am) – If you have people back home that calls every other day with some sort of emergency, put them on an allowance. Say $250 every month. If they call in the middle of the month for something you don’t deem as an emergency, you won’t feel bad for saying sorry Charley, it’s not in the budget. And more importantly, you can budget for that. What messes a budget up is “emergency” expenditures. The more you can curb these, the better.