Managing Your Money Effectively
How Managing Your Money Can Keep You Out of Trouble
Managing your money effectively is not hard to learn. The very first thing you need to understand is your monthly bills don’t determine how all of your money is spent. You do! Spend as much time as you need, to know exactly where your money goes, and why.
If you ask the typical person “where does your money go”, after a blank stare, he may say, my bills. They may, in fact, go to the bills, but what bills? Most of us have rent or a mortgage payment, maybe a car loan, and today especially, student loans. Many others have high credit card balances too.
If you really want to get a handle on how you spend your money, you’re going to have to suck it up, and keep track of all of your money spent for a one-month period. It’s going to be a pain in the backside, I know, but it must be done.
It’s just not the cash you take out of your wallet either. Include every credit card purchase for those items you see and think you need, too. Once you have that, and only then, you will be able to sit down and evaluate how managing your money can benefit you.
Put all expenses into a category
After the one-month period is over, make up categories for the various expenses and charges. There’s no need for a large number of categories either. Your fixed expenses would be rent or mortgage payment, car loan, student loans, and electric bill.
The other variable expenses could be categorized further, right down to the last one called “discretionary spending.” Calculate your net take home pay for the month, and subtract all of the expenses you have listed for the month. If the result is positive, a surplus, good job.
If the result is negative, a loss, read on. There will be further reviews of each category to see where adjustments can be made. The goal is to get into a positive cash flow position, and then ideally, free of debt. Managing your money effectively means you know every dollar is put to work.
Big tax refunds are bad
Getting a big tax refund when you file your tax return is not a good idea. Sometimes, people take that money and spend it on more discretionary items, instead of using it wisely. If you need to, give your employer a new W-4 form to have less money withheld.
Each pay period, if possible, take the extra cash and apply it to your credit card balances. Making a couple of payments each month will lower the interest charge, and may improve your credit score, provided you stop making more charges.
The second reason for not getting a big tax refund is that the IRS may flag your return to do an identity check. Because of all the fraudulent tax returns being filed, they often do the identity check, and this slows your refund considerably.
Make good use of the extra take home pay
Begin now to review all of your variable expenses. Start with your cable and internet bill. If you can change plans to reduce your monthly cost, even temporarily, the savings can be substantial. Dining out could be curtailed or postponed to free up more cash.
Stopping the music downloads, Netflix, and other similar ones, is another source of cash. There are a number of other expenses, such as impulse buying on your credit card, that needs to be stopped. By this time, you should be able to have enough information to prepare a workable budget and be on your way to managing your money.
Review it and see how much you can apply each month to eliminate your credit card debt. Make a detailed listing of all credit cards showing name, interest rate, credit approved, and open balance. There are two methods used to payoff credit cards. One way is paying off the card with the smallest balance and the other way is paying off the one with the highest interest rate. Use the one that works best for you.
Assuming you choose to repay the lowest balance first, start applying the extra cash to that card until it’s paid off. You need to make the minimum payments for each of the other cards too so that they aren’t delinquent. It’s a good idea to not carry any credit cards with you, and just use cash.
When you make a listing of your credit cards, see if any of them have a “ticking time bomb”. What that means is, you were given a zero or a very low interest rate, for a certain period of time, then after that, your rate jumps to a much higher interest rate.
It might be a good idea to apply the surplus funds to this card first, because it’s probably the one you used the most, due to the zero or low rate. Card issuers know that you do this and probably won’t be able to repay it before the high rate kicks in, so they have you locked in.
Control your discretionary spending
This is the one area in budgeting that can provide you with the extra funds to reduce and eliminate your debt. Even doing it for a short period of time will reap large benefits. Many others find that they really don’t need those impulse items and are able to stay debt free.
Managing your money doesn’t have to be an unpleasant task. Staying within your budget becomes easier and the impulse to pull out a credit card for some flashy item you don’t need, pays off big time.
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