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Blog: Simplify Your Life
 Frugal Living 101 -- Money Management
It might seem obvious that sound money management should be on your list of concerns when trying to life frugally. And of course you want to put money away for the future, as you look forward to the day when you no longer have to work -- but sometimes our focus with regard to this issue is a tad misguided.
Plugging The Money Leaks
Long-term investment and retirement strategies are an important component of financial freedom -- but even more crucial is an everyday awareness of where your cash is going. Before you ever consider putting a penny away in savings, you need to do everything you can to plug your spending leaks. It's amazing how many otherwise fiscally-responsible folks let their hard-earned cash just slip between their fingers through simple neglect. Late fees, interest charges, unnecessary penalties, lost gains -- how much of your money disappears each month without providing you any tangible benefit? Let's try to put a stop to that right now!
- pay off your debt, now (if you're spending even one penny on interest from old debts, it's too much -- your first priority on the road to financial independence should be to become debt-free -- if all you do is pay the minimum on your loans and credit cards, not only will you never dig yourself out, you're going to watch thousands of dollars that could serve a better purpose go straight down the drain -- you might think it's smarter to put money away for a rainy day, but it's unlikely that your investments are earning anywhere near the interest rate on your liabilities -- so no matter how much you scrimp and save, you still end up at a loss -- if you want to be free of this particular financial yoke, it's time for drastic measures -- you might consider suspending your investments and taking a break from putting money in savings -- at the same time, eliminate as many of those "luxury" expenses as you can manage for a few months -- then focus all of your financial energies on paying off your liabilities -- plan to knock out the highest interest debt first, then move to the next highest and the next, until you have cleared them all out -- no excuses, no rationalizations, just do it!)
- set up auto bill-payment (so much of our money is wasted on unnecessary late fees -- but ironically, these penalties are rarely due to a lack of funds, and more often caused by financial disorganization -- how often have you been hit with a big fee because you forgot to mail the check on time, or even misplaced the bill in a pile of clutter on your desk? -- the easiest way to avoid this problem is to simply set up recurring auto-pay through either your bank or each individual vendor account -- there are very few companies that won't accept an electronic draft each month, for mortgages, utilities, credit cards, insurance policies, and even loan payments -- the best possible option is to set up an automatic credit card debit, because you have the power to dispute the charge if there is a problem, and there's no worry about a transaction causing an overdraft -- bank EFT's should only be for companies you really trust, and you must make sure to closely monitor your balance -- either way, this option only works if you reconcile your statement with the bills for each charge to keep an eye out for mistakes)
- pay cash or the equivalent of cash (I'm convinced that "easy credit" is going to be the death of our society! -- certainly banks and large corporations are partly responsible for the credit crunch, but the larger blame lies with our need for immediate consumer gratification -- if we want it, we buy it, even if we don't actually have the money for that item and have no idea where it will come from -- but things weren't always this way -- it used to be that people were expected to pre-pay for something they couldn't afford, signing up for a layaway program, breaking the cost into interest-free monthly installments, and taking their purchase home only after it was fully paid for -- but thanks to signature loans and credit cards, most Americans have a house full of consumer products that they still owe on, and they are paying the price for the privilege of "buy-now-pay-later" -- I'm personally allergic to interest, and I don't understand why anyone would want to shell out 2 or 3 times what an item is worth, for any reason! -- I firmly believe that if you can't afford to pay cash, that's a sign that you shouldn't buy it right now -- I realize that layaway is rare these days, but what's wrong with saving up for something you really want? -- this is even true for big purchases, like vehicles -- Matt and I financed our very first car, and swore that we would never do it again -- we simply saved and waited until we could buy our next vehicle with cash -- it's actually not that hard, especially if you trade in the old car, buy used, and aren't having to pay for the extra interest on a loan -- plus, plunking down cash puts you in a strong position for negotiating a bargain -- car dealers often appreciate not having to process the paperwork that goes with financing -- I love saying, "I'll write you a check for the entire balance today if you'll knock $3,000 off the total," and watching the price of my purchase plummet!)
- keep track of your spending (most people go through life working and shopping and paying the bills, without ever really being aware of where their money goes -- do you keep a budget? -- I know it sounds like a pain in the neck, but it's much better than spending your life running on a treadmill of debt -- you don't need a complicated bookkeeping program -- just set up a spreadsheet, listing each of the major categories of expense in your life -- food, clothing, household supplies, auto, insurance, entertainment, medical, whatever -- estimate how much of your monthly income you can AFFORD to spend on each, then compare that to what you ACTUALLY spend -- it's the only way to really know whether or not you're overstepping your financial bounds -- but you have to track every penny, or it won't work -- I personally have a hard time with cash, it just slips through my fingers and I can't recall what I bought -- so I've gotten in the habit of putting every possible expense on our credit card, then of course paying the bill in full -- this gives me a thorough accounting of our spending each month -- every restaurant meal, every impulse buy, every soda or snack at the gas station is staring me in the face when I do my bookkeeping, and I find it much easier to recognize those areas where we need to cut back a bit)
- pay attention to your taxes (a lot of people think it's a good thing to get a big refund check come April 15th, but it's silly to treat the IRS like a savings account when you're getting no benefit from your money -- if you reduced your withholding and had that money in your hand throughout the year, you could at least put it in a savings account that pays interest and get some kind of return on your investment -- the rules state that, in order to avoid a penalty, you just have to submit payment by 12/31, and my CPA has given me no good reason to do it any earlier! -- the best strategy is to simply send in a check at the end of the year, and only pay exactly what you owe -- by then, you or your accountant should be able to calculate your precise liability -- whether you are subject to withholding or pay estimated income taxes on self-employed earnings, don't give your money to the IRS any sooner than you have to -- also be sure to get any deductions in before the last day of the year if you want them to count on your current return)
- be careful about bank fees (Matt and I happen to be blessed with USAA as our bank, which means no fees for anything -- unfortunately, most accounts at other institutions are riddled with hidden fees -- but fortunately, they are easy to avoid as long as you're aware of these costs up front and do a little planning ahead -- if your bank charges overdraft fees, see if you can use an advance from a credit card or savings account to cover any check that might otherwise bounce -- if you get hit with a double fee for using another bank's ATM, take a second to locate a fee-free machine before you head out of the house -- ask about charges for a low balance, an excessive number of transactions, or "extra" services -- and if the fees become too onerous, shop around for another bank or see if you qualify for a credit union account -- financial institutions are always competing for your business by offering free this and free that -- you just have to find the better deal!)
- as well as credit card fees (first off, there's no reason on earth to pay an annual fee for a credit card, even a reward card -- too many companies offer fee-free accounts, so if you're paying for the privilege of using a bank's services, it might be time to switch -- you also shouldn't have to pay exorbitant rates for foreign transactions, cash advances, or balance transfers -- again, shop around -- and if you get hit with an unusual fee that you weren't expecting, call and ask to have it removed -- point out that you are a good customer, that you've never had this happen before, and that you hope the company values your business enough to accommodate you -- if they don't comply, you can always take your business elsewhere)
- ask for discounts (many of the companies with whom you currently do business offer unadvertised discounts, so get in the habit of quizzing them about your options -- can you save on insurance rates by having all of your policies under one carrier? -- because you have a smoke detector or car alarm? -- will your doctor give you a better price on health care services if you pay cash up front and file with the insurance company yourself? -- can you get a break on a monthly service if you pay for a year's worth in advance? -- you'll never know if you don't ask)
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posted on: 7/12/2011 11:30:00 AM by Ramona Creel
category: General Organizing Tips
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Simplify Your Life
by Ramona Creel
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About Ramona:
I have been a Professional Organizer for more than 10 years, I am a NAPO Golden Circle member, and I was the original founder of OnlineOrganizing. I have worked one-on-one with scores of clients and have trained dozens of newbie organizers as they got started in the industry. I provide both hands-on and virtual coaching to help clients improve their organizing skills and simplify their lives. I invite you to visit my website at http://www.RamonaCreel.com, and I challenge you to find one new idea that you can put into practice in your life, to help you become better organized, starting TODAY! I am passionate about coaching folks toward a more balanced, productive, and enjoyable life -- and I firmly believe that if I can do it, so can you!
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