Using Credit Cards Wisely

I’ve had my credit card for almost 6 months now, and it’s a great feeling to know that I’ve used it wisely enough to not have to pay a dime in interest so far. The only way to do this is to pay the balance off every month. And so I have. But here comes my admission:

It’s not only wise to pay off your credit card every month but it’s wise to not put more on there then you can realistically handle for that month without having to cut other things in your budget.

The reason I bring this up is because though I’ve paid off my card every month I’ve had to forgo a few of my payments to myself (aka: savings) in order to make sure I didn’t receive any finance charges. Of course, it was worth it to me since I already had some saved up to go ahead and pay off the card but at the same time I wish I wouldn’t have put so much on there. Was it too much to handle? No. But then again, it was! Because I wasn’t able to do the thing I want to do the most for a few weeks: pay myself!

But as of today I’m back in the game. My credit card balance is back to 0, still no finance charges, and I am ready to pay myself first when my next paycheck comes in. It will be a nice feeling to see my emergency fund start to build.

Obviously, my position is GREAT compared to some but I try not to compare myself to others. I compare myself to well, myself and the goals and position I’d like to be in. And for a little bit there I was falling short of that.

So here’s to using credit cards wisely:

1. Pay off the balance in full every month. I know, it’s said over and over and I’ll say it again. If you don’t have the money–don’t buy it!

2. Put a plan in place. If you don’t have a plan in place, you need to get one! Decide on what you are going to use your credit card for. Is it for gas? Is it for all your expenses? Is it just for special times like vacations or other trips? Whatever it is, keep it simple and stick with it.

3. Watch little expenses. Depending upon your plan, it’s still easy to put things on your credit card without thinking twice. I realized 2 months ago that the majority of my balance (which wasn’t much but still…) was food. Food?? Why didn’t I just pay that with my debit card or cash? I don’t know the answer to that but I wish I wouldn’t have. It’s just unnecessary stuff and definitely out of my “plan.” =)

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The Automatic Millionaire: Pay Yourself First

Simple concept: pay yourself first.

Don’t dismiss it. Don’t say it’s impossible. Because it is possible. Of course, you may have to cut some expenses but that doesn’t mean it’s not possible.

If you are truly interested in being financially independent and at peace then you will pay yourself first. You will decide how much of each paycheck (or other source of income) you want to save for the future (your retirement or any other goal)–it can be a certain percentage of your income or a set amount–and before you do anything else with all the money you just received, you put YOUR money into a savings account.

Then with the rest of the money you pay bills and live on it. If you can’t live and pay bills with the rest of it then you need to cut expenses, not necessarily savings.

Of course, when you are ‘paying yourself first’ you need to be realistic. Don’t tell yourself you can save 80% of your income and live on 20%. Unless you really can, of course! Sit down and figure out what is realistic and yet will still stretch you a little and force you to cut down some frivolous spending.

When you’ve decided on the amount you want to save, do it. =) Save it. Before spending any of it. You can set this up to be an automatic deduction from your paycheck or even automatic from your checking account to a savings account on payday. But however you do it, the key is to actually do it.

Of course, I’m not perfect and am still figuring out exactly how to make it all work. But once you start to play around with it, it actually becomes quite enjoyable and fun to see your savings accounts go up (and therefore, hopefully, your net worth!)

Retirement Doesn’t Have to be Your [only] Goal

Ever since I’ve started to read Personal Finance blogs I’ve realized there seems to be a common theme: retirement. And there’s definitely nothing wrong with that. Many people’s goal is to work, save and live in such a way to be able to retire earlier than most with more money than most. Now, what they are actually going to DO during retirement, I am not sure. It varies from person to person, I guess.

But regardless if that is the dream most people are chasing and working to achieve it does not mean that is the dream you have to work to achieve. Or at least the only one you work toward.

Maybe your goal is to save enough money to start your own business one day. Or to have enough to live on while you start blogging full-time.

I guess it all comes down to how you define, “retirement.” Sure, one day, I’d like to escape the 8-5 and “retire” but that doesn’t mean I want to sit around and do nothing. It means I want to be able to do whatever I want 24/7…whether that’s working, playing, relaxing or traveling. But with that definition of retirement we don’t have to wait till we’re older when we are able to cash in our 401(k)s or IRAs. It’s something we can work to achieve much earlier than that if we would like (while still funding those ‘retirement’ accounts for later on.)

Of course it’s hard enough to save enough to live on after the traditional “retirement” around the age of 60, so if you’re wanting to do some major things before then it will require even more focus and planning. But of course, as always, it’s totally possible.

If you’ve been stuck in the mindset that all you’re working toward is retirement but feel a little uneasy about it you should take time today or this week to sit down and write out the things you’d like to achieve before then. And then how you’re going to get there. 🙂

The Automatic Millionaire: The Latte Factor

I finished reading the book The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich(affiliate link) a few weeks ago but with trying to finish the school semester strong (which I did!) I have yet to post about it. So here it is!

The Automatic Millionaire is written by David Bach, and despite its title, is not a “get-rich-quick” scheme (trust me, if it was, I would not have wasted my time to read the entire thing.)

It’s a fairly quick read, and one I highly recommend to any person starting to pay attention to their finances and setting the goal of being well-off and worry-free one day. (Remember, the first decision is to DECIDE.)

The points David makes in the book are valid and powerful regardless of whether you choose to “automate” them or not. He is a big fan of making everything automatic–especially retirement savings (setting it to come automatically out of your paycheck into your 401(k) or IRA.) But some people do not feel comfortable setting everything up automatically so I would vary with him on that some people DO have the self-control to move the money right away on a regular basis (every paycheck.) I’m one of those people who takes great pride and joy in moving my money (manually, though still electronically) into my savings accounts.  If, however, you foresee or start to see, the problem of spending the money you are supposed to be saving, it would be best to automate it.

Besides the “automatic” side of the book, one of the major points Bach writes about is what has become known as the “Latte Factor.” How little expenditures every day add up and how that money could be adding up to wealth for retirement (or whatever other kind of goal you have!) Here’s the breakdown if you buy a latte and a muffin every morning for breakfast:

$5 average cost of a latte and muffin x 7 days = $35/week = approx. $150/month.

But if you chose to INVEST that $150 a month and happened to earn a %10 annual return, you’d wind up with:
1 year = $1,885
2 years = $3,967
5 years = $11,616
10 years = $30,727
15 years =  $62,171
30 yea rs = $339,073
40 years = $948,611

Some of you are saying, “But I have to eat breakfast,” and others are saying, “I’m not going to earn %10 every year.” Both are true but 1.) You can eat breakfast for much cheaper (at home!) and 2.) You may not, but it’s definitely possible and the idea behind it is what is important and powerful!

The point is to realize that most of us spend money like we breathe. Obviously, life requires spending money. But it doesn’t require spending ALL of it or spending it just because we HAVE it. If you have a dream that requires money (retirement, starting a business, building a house, etc.) then you need to start saving for it NOW. It won’t just magically appear whenever you’re ready to start living out the dream.

There  are definitely other principles David Bach discusses in the book, and I will address some more of them in the coming days. My hope is that when you start to think about it and see the numbers the way you view and spend money will change and your life will be better off because of it!

Do you have something that you could give up on a daily (or just regular) basis and start saving that money instead? (Mine used to be lattes but I’ve cut that out of my life since January of this year! So glad I did too.)

Put Your Money IN The Bank

I can’t tell you how many people I’ve met or heard about who, for whatever reason, don’t have an account at a financial institution. They take their paycheck every week or two, get it cashed and head on their merry way.

Of course it’s no wonder they’re probably living paycheck to paycheck.

I’m not trying to dog on anyone. And to most it seems like common sense. But if you don’t have a bank (or credit union) account you need to go out tomorrow and GET ONE. And put your money in it. And keep it there. 😉 It’s much safer there than in your house anyway. Every financial institution is backed by the FDIC or NCUA for up to $250,000. This means that if for whatever reason the institution that has all your money goes under, you will still get all your money back up to a quarter of a million dollars.

But that is truly besides the point because the people who don’t have accounts at a financial institution are, more than likely, not the ones saving up wads of it in their home somewhere. They are the people who spend all their money and sit around miserable until the next paycheck comes (if the next one comes!)

If you’re just getting out on your own or are finally starting to make some kind of income (even an allowance!) search out the best financial institution in your area and open up at least a basic savings account and a checking account. Savings can be for your growing emergency fund and your checking account, well, it’s to live out of. Get a debit card and then just watch your spending (make sure to sign up for access to your accounts through your institution’s website so you can view balances and such 24/7.)

I’m not sure why some people are opposed to keeping their money at a financial institution. Do you have any ideas?

Stupid Mistakes Will Cost You

I have 2 checking accounts. One I use to pay bills out of (reoccurring, monthly ones basically) and the other to “live” out of (daily expenses.)

I keep only what I need to in my bills checking account–though I know I need to put a few hundred in there as a cushion, I just haven’t got that far yet.

So this past week I deposited money into the account through the “night drop” at my credit union thinking it would get posted on Saturday (because they are open.) Of course, it didn’t get deposited till Monday but I knew there was that risk.

In the mean time I was charged rent. It was the one weekend I wasn’t paying very close attention to my finances since I had taken cash out to spend while on a mini-vacation to Dallas, and I didn’t think there was any reason to really check up on it.

Wrong.

My stupid (little) mistake cost me a $22.50 non-sufficient fund fee plus a little bit of hassle with the management of my apartment (though they were very understanding since I went to them the day of instead of later.)

Thankfully, since I have a good track record the (awesome) credit union I am a member of refunded it for me, no questions asked. But it does show that regardless of how “automated” your finances are you still need to keep an eye on it.

Wisdom: I have now set up overdraft protection from another account of mine just in case. I should have done this when I opened the account but it goes to show we all can make mistakes sometimes. 😉 I was tempted to get stressed over the whole ordeal but I knew it would work out, and I’d just have to be patient. So I did. And it all paid off. All stress does it make you miserable. It doesn’t help your finances. So next time, just take a deep breath, plan how to fix the problem, then go fix it.

It will all be over soon. 🙂

Awareness Saves Money: Electric Style

The more aware we are of our spending the more we may be able to save money.

I have yet to perfect the art of tracking all my spending (honestly, I think I’m just still too lazy–feel free to give me a good kick) but I have found the perfect tool to track my spending on my electric bill.

It’s a website (and also an app for certain phones) called My Usage. Not all electric companies support this tool but for those who do, it’s perfect. Just go to http://www.myusage.com and click “Sign Up Now.” It will offer you a few steps to see if your particular company is supported. If it is, you can sign up and be able to view a graph of how much electricity you are using every single day.

My graph currently looks like this:

The usage is measured in temperatures and the red graph represents the average in “my area” (not sure what the area is exactly.)

I have this app on my HTC Hero with google phone (android powered) and check it every morning. I live in a 2 bedroom, 2 bath apartment with only 1 other person so my usage may be lower than some (it is also quite perfect right now outside so now air or heat is being used) but I definitely notice a difference on days I do laundry and use the dryer.

This app has just made me a lot more aware of how much electricity I am really using and how much it’s costing me. Turning off lights and keeping the usage down to a minimum whenever possible is now a thought that actually crosses my mind whereas if I didn’t have this app I probably wouldn’t really think about  it.

Basically, it just helps me stay aware. And awareness is powerful. Because it promotes action–even more powerful!