Whether you’re the head of a one-person household or provide for an entire family, your paycheck could always go a little further. After all, what’s the use of working your hands to the bone if the money you earn slips through your fingers before you’ve had a chance to enjoy it?
Managing your personal finances effectively doesn’t require an MBA, even if it sometimes feels that way. Defend yourself and your family from debt, insolvency and the unknowable future with these easy-to-implement tidbits of money advice.
First, spend within your means unless you have a compelling reason, like a health emergency or an unforeseen car repair, not to do so. This is easier said than done, of course. You’ll have to set aside the credit cards that you currently use to make regular purchases at the grocery store or home-improvement warehouse and use cash or debit only. Keep the lowest-interest piece of plastic on emergency reserve in your wallet and hide all of your other active credit cards.
This may require superhuman reserves of self-discipline, but it’s not negotiable: You can’t right-size your household budget until you’ve eliminated any temptation to exceed it. You may want a new lawnmower to replace your rusty but still-functional old workhorse or one of those flat-screen TVs that everyone else seems to have these days, but discretionary purchases like these aren’t worth it if they’re going to drop you even deeper into debt. Remember, frugal living is a crucial component of any plan to maintain your financial well-being.
Next, focus on getting your debt situation in order. Now that you’re no longer using your credit cards for everyday purchases, you’ll find it easier to begin paying off your outstanding balances in a meaningful way.
Use the “snowball” method to pay off your credit cards. Identify your most expensive credit card and devote the bulk of your financial resources to paying it off each month, making the bare-minimum payments on each of your other cards until you’ve zeroed out its balance. Then move on to your next-most expensive card, pay it off aggressively, and repeat the process until you’re left with your lone emergency credit card. Incidentally, you should never carry a balance on this emergency card.
Depending on how much debt you’re carrying and how much income you have left over each month after accounting for household necessities, you may not be able to pay down your outstanding debts on your own.
Don’t be ashamed: Millions of folks struggle with intractable credit card debts, medical bills and other financial obligations that threaten their quality of life. To get your financial house in order, consider retaining a low-cost debt settlement service that can cut your outstanding balances down to a fraction of what you owe in as little as 24 to 48 months.
However you remove the debt anvil that’s been hanging over your head, you’ll need to reorder your finances permanently once it’s gone for good. Aside from cutting out obviously wasteful purchases like an additional high-end television or new motorcycle to share garage space with your existing car, you’ll find plenty of fat to cut from your budget if you know where to look.
Start with your personal vehicle, which is probably the second-biggest financial burden that you’ll take on during your lifetime. While you may understandably enjoy the status that a high-end late-model car confers, your showpiece is probably costing you an arm and a leg.
Unless you were able to put down the bulk of the car’s value before receiving a loan for the rest and driving it off the lot, chances are good that the annual interest alone on your auto loan exceeds the value of many serviceable used vehicles.
Once you add in the cost of repaying your loan’s principal and the costs of insuring a shiny new car, you’re on the hook for hundreds of dollars per month. For example, assuming that you have good credit, you can expect your monthly payment on a new Lexus ES350 with standard options and $2,000 down to approach $700 without insurance. If you have poor to mediocre credit, you’ll pay even more.
According to Kelley Blue Book (kbb.com), less-flashy new cars aren’t much better. With mediocre credit, you may be able to secure a no-money-down loan on a base-model Toyota Corolla, but you’ll pay dearly for the privilege: Monthly payments can approach $400, not including insurance, on these supposedly affordable vehicles.
Buying a well-maintained used vehicle will save you money and stress. Most brand dealerships now offer “certified pre-owned” vehicles that look and behave no differently from their never-driven counterparts. Most are less than four years old, with mileages kept artificially low by stringent lease terms that encouraged their former owners to drive them sparingly. If you can find a pre-owned vehicle that resembles the current model-year version stylistically, your peers may never know that you didn’t buy it new.
It’s even more common to buy a “used” home than a used car, but that doesn’t mean your house won’t be the most important purchase that you ever make. Pay careful attention to money advice about buying and paying for your home as your decisions regarding which type of mortgage to use may either save or waste thousands of your hard-earned dollars by maturity.
Unless you expect to move around a lot in the coming years or worry about your short-term employment situation, buying a home generally makes more long-term financial sense than renting. Rents have been at historic highs for years and continue to climb, while home prices remain depressed after years of sluggish economic growth.
If you plan on staying in your home for many years, you’ll want to take out a traditional 30-year mortgage. Interest rates on these products, which are available in the aggregate on home-search sites like Zillow.com, hover around four percent. Since mortgages are “secured” by the house against which they’re made, they don’t fluctuate much with respect to your credit score like rates on personal loans or other forms of unsecured credit.
If you aren’t sure how long you’ll be living in your new house, consider taking out an adjustable-rate mortgage instead of a traditional loan. These products tend to offer artificially low rates for the first few years of their term, giving you a great opportunity to pay them down aggressively.
After a specified period, usually between five and 10 years, the interest rates on adjustable-rate mortgages are free to match the market. In practice, this often means that they shoot up with little warning. If you can sell your house before this happens, though, you’ll probably save thousands of dollars relative to the cost of a traditional mortgage over the same period.
No matter how you decide to handle the two biggest obligations of your life, a host of smaller decisions may well make or break your financial well-being. Be sure to control the cost of your groceries and utilities by wasting less and buying off-brand products that offer quality at a fraction of the cost of their advertising-supported competitors. If you live frugally and stay disciplined, you’ll soon be in the position to give some money advice of your own.
