The “money” of today is more than just the paper and plastic that you carry around in your wallet. In fact, the term has come to encompass your general financial identity and includes your outstanding debt obligations, savings and investment vehicles, retirement account, and of course that dreaded number known as your “credit score.” At times, successfully managing all these moving parts can seem like a full-time job.
Making your money work for you shouldn’t be exhausting. Many common financial issues, from missed credit card payments that incur sky-high penalties and interest charges to expensive grocery and utility bills that seem to suck up all of your take-home pay, can be fixed or at least ameliorated with old-fashioned discipline and sensible decisions. Use these money management tips to improve your financial IQ and begin taking meaningful steps to improve your family’s future.
Your first step down the road to savvy money management should be to set up a high-yield savings account into which you’ll deposit at least five percent of each of your paychecks. That may sound like a lot, but the alternative to a meaningful savings cushion is a paycheck-to-paycheck existence that leaves no room for emergencies or future plans.
Paying for even one major car repair or injury with a high-interest credit card out of necessity can radically change your financial future and put your family in a terrible spot. While an expensive emergency may dent or wipe out completely the savings that you’ve painstakingly accumulated over time, your savings cushion will at least reduce or eliminate the amount of debt with which you’ll be left after the event.
You should also earmark a portion of your savings for the long term. If your employer offers a 401(k) plan or other type of retirement account, investigate its goals and terms and decide whether you’re better off setting up your own plan. Your employer’s plan may be the best bet for two reasons: One, many companies still match their employees’ retirement-account contributions, and two, the money is taken directly out of your paycheck. The former helps your nest egg to grow more quickly and the latter takes the sting out of losing part of your take-home pay to savings.
Once you’ve set yourself up to save, laser in on your spending. The bulk of your outlays each month will come in the form of recurring costs like utility bills, groceries, taxes, fuel costs, and other necessities. As a rule, you should pay for these items with cash or debit rather than credit: If you’ve ever gone on a credit-card shopping spree, you understand the dangerous power of a piece of plastic that enables you to buy things now and pay for them at some supposedly distant point in the future.
Of course, credit cards don’t defer your responsibility to pay for your purchases forever. Your 20-day grace period seems interminable until it ends and you’re suddenly responsible for covering annual interest payments that can exceed 20 percent of your principal.
Even if your credit card company offers gold-plated travel rewards or generous cash-back payments and treats you like you’re its only customer, these perks will cease to make financial sense the moment you begin carrying a balance on it. In fact, you may forfeit any accrued rewards, even on lenient “introductory” credit cards like Chase Freedom (Creditcards.Chase.com/Freedom), if you miss a payment or incur penalty interest. Factor any supposed incentives out of your decision to apply for a new card.
To avoid the temptation or, worse, the need to charge everyday expenses, take the time to make a household budget and stick to it. Your spending can be divided into several logical categories, each of which probably eats up too much of your after-tax pay as it is. Luckily, even fixed, seemingly intractable expenses can be brought in line with your income with relatively little pain.
Depending on how many mouths you’re responsible for feeding, your weekly grocery bills may be staggering. Chances are good, however, that you haven’t fully realized the cost-cutting potential of disciplined shopping.
Before your next trip to the supermarket, look over your last grocery receipt and highlight every brand-name product on it. If said products are staples like pasta, rice or beans, they’re probably not worth the premium that you’re paying relative to their generic counterparts. Even generic meats and cereals exhibit few obvious differences in quality or taste. You’ll save at least a few dollars on each grocery bill simply by switching to generics if you haven’t already.
Next, highlight any perishable items that can either be purchased more cheaply or have a non-perishable counterpart. The former subcategory might include less-expensive cuts of meat, like ground chuck and strip steak, while the latter might include frozen or canned fruits and vegetables. You may have to alter your cooking techniques to make strip steak taste like prime rib, but you’ll save so much money in the process that you’ll probably be able to live with the results.
Finally, follow one of the oldest money management tips in the book and clip coupons. These days, many coupons are digital and can be found either at general coupon-aggregating websites like CouponMom.com or on retailer-specific websites like Coupons.Walmart.com.
Unless you’re independently wealthy, in which case you probably don’t need any of these money management tips, your home and car are likely to be the two largest purchases that you make in your lifetime. Both will require you to take on significant amounts of debt, with long-term consequences: Depending on how you approach them, your decisions regarding your mortgage and auto loans have the potential either to save or cost you thousands of dollars.
While the recent decline in housing prices has scared many potential home buyers into continuing to pay historically-high rents on their supposedly temporary apartments long after it’s ceased to make financial sense, the process of buying a home is certainly intimidating.
These days, most mortgages require a minimum down payment of 10 percent of the loan’s total value. Unless you have excellent credit, your initial outlay will probably be even bigger than that. This isn’t necessarily a bad thing: Any money that you put down on your new house is money that won’t be accruing interest charges over the 15-to-30-year term of your mortgage.
Although it might require some discipline to defer buying a new TV or a stereo system for your new digs until after you’ve plowed as much money as possible into your mortgage, the amount that you’ll save by doing so over the life of your loan will far exceed the value of even a high-end home entertainment system.
The same logic should apply to your car-buying behavior. Since you’ll buy many cars in your lifetime, it’s important to develop automotive discipline early. Buy used cars, which carry lower monthly loan payments and insurance costs, whenever possible. If you don’t like the stigma of the word “used,” consider compromising with a “pre-owned” vehicle from a brand-affiliated dealership.
You may have to reorder your priorities a bit and impose some self-discipline in order to do so, but you’ll be glad that you took these money management tips to heart before long.