Part of the Resource Center Guide to Managing Your Money
No matter what your stage of life—20s, 40s or 60s—it’s never too late to learn to better manage your cash flow. Like any life skill, money management is refined as you age and move through different stages of your financial life. In all likelihood, your fiscal priorities at 25 will be very different from your needs later in life. And your money management skills will also continue to evolve as your needs change. Here are a few smart ways you can manage your finances today to be better prepared in the years to come.
To begin, try to keep two common principles in mind: 1. Know what you earn and spend, 2. Save the difference. The first principle can be summed up as “Do not spend more than you earn.” Sounds simple, right? But with the various credit options available to fund purchases, it can be easy to lose track of how much you are spending. If you find you are over-using credit cards, wrap a piece of paper around each card, so you can write down your purchases and track what you are spending throughout the month.
And don’t forget about savings. Put aside the difference between what you earn and what you spend towards savings. Leave part of your savings for unexpected events, such as your car needing a major repair or loss of a job. The rest can be used for future purchases, such as an upcoming vacation or down-payment on a new car.
A common rule of thumb is to finance large purchases, such as a car, a home or education, and to use your monthly cash flow for all other purchases. Try to keep debt at a manageable level, where you can make monthly payments without having to reach into your rainy-day savings.
If you have a lot of debt, here are some simple ways to pare it down. To start, try making “micro-payments.” For credit card debt, this means making smaller payments throughout the month instead of one large payment at the end of the month. While most people are accustomed to paying just once a month, you can make payments more often. How does increasing the number of payments make a difference? Micro-payments can have a significant impact on the amount of interest you pay. If you carry a balance, credit card companies charge you interest daily. If you make a payment at the end of the billing period, you will pay interest on the full balance for that entire billing period. But when you pay more often, you reduce your balance and, subsequently, you reduce the amount of interest you pay each month.
When establishing a new billing or credit relationship, ask when the monthly statement arrives and when payment is due. That way, you can ask if you can set it up for a date when you will have the most money available. For instance, many people pay some bills on the 15th, others on the 30th, to spread out their expenses and to coincide with their paycheck cycle.
Here’s another smart tip: try pacing your payments and stagger your large purchases to the end of your credit card cycle. And remember, it never hurts to ask if you can pay in installments. For example, the cost of braces can be a significant financial investment but many orthodontists will offer options to make the treatment more affordable. The most common options include payment in full with a discount, or payments over time (with or without interest).
To better manage your cash flow and your debt, try sticking to the common principles of sound money management and you will see a positive result. Remember, it’s never too early (or late) to learn how to better manage your money.
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.