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Learn to look after the pennies and the Dollars will look after themselves......
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Everyone should really consider ways of educating themselves on personal financial management. At any moment in time an individual should be aware of their finances. Planning ahead for future financial security and any emergency's that may occur. Below is some advice on what you should really have in place in your finances.
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So do you know where your money is going? Or does your next paycheck turn up just in time?
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A frightening fact is that most people live paycheck to paycheck. After paying the bills and living expenses such as Gas, Food, etc, the rest is frittered away on generally needless things. Expensive habits soon mount up into big spending. People don't take into consideration that a couple of bucks here on a candy bar and a few bucks there on a coffee mount up to a significant amount of their income disappearing purely due to lack of attention to detail. Now I am not saying you should not eat candy or drink coffee, but what I am saying is step back a moment and realise just how it mounts up over the course of time.
Below is an example of a random persons spending on a day to day basis. I will average over a 5 day working work and a 48 week working year so as to take in consideration, vacations, sickness, etc (bear in mind all that most people trickle away more money than this, cigarettes, fast food, more than one coffee a day etc) I then work out what it would amount to if you put it in a savings account at a 3% interest rate and what your balance would be.
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Daily items Daily cost Monthly cost Yearly cost 10 Years total 20 Years total
Candy bar $1.50 $30 $360 $4250.79 $9963.51
Coffee $3.50 $70 $840 $9918.54 $23248.24
Lunch $6.00 $120 $1440 $17003.22 $39854.13
Soda $1.00 $20 $240 $2833.87 $6642.35
Total $12.00 $ 240 $2880 $34006.42 $79708.23
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Now when you look at things like that, those pennies really add up. Just by writing down what you are spending everyday for a week and multiplying that number by four weeks you can then get an idea of how much money you are frittering away with out realizing. If you for example pack your own lunch or cut out the candy bar snack and sodas you could really get some extra cash around you each month. Bear in mind quitting smoking or car pooling to save cash and a whole host of other ways to cut costs become apparent with a little thought. So now you've got spare cash, what do you do with it?
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Three options are in front of you at this point. You can use the spare cash to pay down any existing debt you might have, save the money in an interest bearing account, or use it to buy things you may NEED and at the same time build your credit score. The most important thing is to not replace one bad spending habit with a new one. The first one we shall cover is paying down existing debt.
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Paying down existing debt.
Now you have your spending habits in line you should assess what, if any, debt you have around you. If by trimming your spending you find you are saving lets say, $100 a month, you could and should put that money straight into paying down any existing debt you may have and therefore free up even more cash a month. Credit cards and Loans are the best candidates for paying down. This will also help your credit rating as you will lower you "debt to credit" ratio and also give more of a payment history. Credit cards are discussed in more detail here Loans are discussed here
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Saving the money in an account.
Saving the money in an interest bearing account is also another great option you should put to use. Your money works for you if you put it into an interest bearing account. Most banks offer interest bearing accounts and it can be a great way for you to put money away for retirement or as a fund for an emergency or towards a vacation, whatever reason you choose, everyone needs a savings account. Personal savings are discussed in detail here
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Buying to build credit.
Buying to build credit simply means using the money you have saved and combining it with credit cards. How this works is very simple but takes a little discipline. If you were for example saving $150 a month from using the methods of trimming spending described above. You would take your credit card, use it to buy things you NEED and then use the $150 to pay it off each month. For example, say you use it to buy clothes for work one month, you limit your spending to perhaps $135, then pay that and the interest off when it comes to payment day. This will show you as a disciplined user of credit in control of their money and will help your score and history. The discipline comes in by not spending more than you intend to pay each month. The amount will vary person to person of course, but its very simple, if you can afford to pay $200 a month, don't go over that amount. Credit cards are discussed in greater detail here
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Balancing a combination of credit and savings.
One method that takes a lot more discipline but is also very effective is combining two of the three methods above, for example, if you save $180 a month by curbing your spending, you could use $80 to pay down your debt and save $100 a month in an interest account. This is a great way to get a more secure financial setting in your life. Some experts will tell you to focus on paying down your debt first. But what happens if in the meantime of your putting all your new found extra cash into paying off debts, there's an unexpected expense, like a car break down or a trip to see an ill relative? Wheres that money coming from? Credit card etc, back to square one. At least with this method you have spare money around you and can still keep your debt on the track to being paid off.
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As time goes by we will be adding a lot more content to this site so check back frequently.
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