I was off from work today. But I had A Plan for today. If you get upset when people talk about money, you should stop reading now.
I spent the day managing our money. If you think about how much time we spend earning or money versus how much time we spend taking care of our money… well, on the former it’s usually at least 40 hours a week. On the latter, if you don’t count paying bills, it’s probably less than an hour a month.
When all was said and done, my husband owes me dinner because we had met my financial goals for the year — goals which I had set at about this time last year.
So why do you care? You probably don’t care about what I’m doing, honestly, but I want to put a call out to remind you to spent some time at the end of the year doing some financial housekeeping. Financial education sucks in our country. Do you know how much your parents make? Whether they owe any money? What their retirement account balances are? If your parents weren’t teaching you by example how to deal with finances, how did you learn? Or did you ever learn? Our society doesn’t really teach you the stuff you should know to stay out of debt and build up savings. And we have this huge tabboo about talking about it. Many people don’t get any real education at all. And so here are Oriana’s year end tips for a better fiscal 2005:
1) Know your status. Find out a way to answer the following questions:
*How much do you owe, in total?
*How much do you have saved, in total?
*How much do your basics cost every month? (Rent, food, gas, heat, insurance, car payments)
*How much do you earn every month?
*Assuming you earn more than you need to live, what do you do with that money? (If the answer is “I don’t know”, keep track for a month or two. Credit card statements can be a real help if you use plastic regularly.)
*Assuming you earn less than you need, that’s not sustainable, obviously. What are your plans to change that? Are you going to cut costs, increase your income, or both? (You get a bye on this one if you’re still in school.)
2) Never, ever let your credit suffer because of a cash-flow issue.
You know the story. Your bills are due the same day every month. You have an unexpected expense. Or one of your payments gets lost in the mail. A check gets misplaced by the bank. It takes longer to clear than you expect. There are a hundred gazillion ways this can happen — many of which you have no control over. If the bank messes up your deposit, it doesn’t affect them at all. If you miss a bill payment, though, it can negatively affect your credit score — your ability to buy a house, a car, get a credit card, get a job — for 7 years.
So here’s what you should do:
Everyone: Build a financial savings cushion. Put a little aside every month — you can have amounts auto-debited by most banks, so you never even notice it. If you do not have enough money to put $10, $20 or $50 aside every month, you need to evaluate either your costs or your income.
People with good credit: Assuming you haven’t quite saved enough to cover yourself in case of a shortfall, a credit card and/or line of credit on your checking account is a good temporary measure. I particularly like the line of credit offered on the “bottom” of a checking account. Basically, you have a credit line on your checking account — say $1000 at 12.9%. If you have a balance of $100 and you write a check that clears for $120, you borrow $20 at that credit amount. When your $200 check hits, you pay back that $20 first, so you have a balance of $180. It’s way, way cheaper than bounced check fees, and tremendously convenient. Most banks have this service, although few advertise it. If you’re doing the credit card route, save a few of the checks they constantly send you to cover any cash-flow gap that comes up. But be sure you pay it off when that check DOES clear.
People with bad credit: You’re like, “Yeah right. Works for people with great credit, but that’s not me.” Don’t be embarrassed. Lots and lots of people have pretty crappy credit right now. There are a few options you have to cover cash-flow issues.
1) Save enough of a cushion. “They” say you should have 6 months worth of cash on hand. I’d love to know what fantasy world “they” live in. I suggest, though, that even if it takes sacrifices, if you’re making enough, you should try to have at least one paycheck on hand, in case something bad happens.
2) Grit your teeth and sign up for one of those high credit cards. I hesitate to suggest this if credit cards were what got you into trouble in the first place, but assuming you can keep yourself from buying those snazzy shoes just because you have credit, these can really get you out of a tight spot. You do not have credit that is too bad. I swear, these guys would lend to Enron. The key here is that you HAVE TO PAY IT OFF every time it comes due. This isn’t a way to get extra money, it’s a way to make sure that the timing of the money you have doesn’t screw you. Here’s a link to some credit cards that are offered to people with bad credit. The best part of this is that if you use this only as I describe, you’ll actually start rebuilding your credit.
3) If you have a balance on your credit card, pay off more each month than you charge each month.
Um, that’s it.
4) If you are not in debt, or have only “good” debt (mortgages, low interest car loans, student loans), save money. You should first focus on having that cushion I spoke about. Once you’re comfortable you could weather a missed check or two, start saving in a retirement plan. 401Ks are best, but IRAs have lots of good options. That’s a bigger discussion than I feel like having right now.
5) So far I’ve failed to address the really big issue.
What happens if it simply costs you more to live than you earn? I think there are a lot of people in that situation. There are only two sustainable options.
a) Earn more. Get a better paying job. Or a second job. Or maybe your SO needs to earn more. This can suck, especially if you’re in a low-paying job you really like. But I think there are some of you out there who are in low-paying jobs you don’t need to be in — you’re more talented and capable than that. You’re just hooked on the security of your current job. Obviously, that’s not universally true. That’s just true of many of my friends.
b) Spend less. The diet method. Do you need cable or a cell phone? Can you get a roommate? Do you need a car? How much would cooking at home save you? Do you buy clothes you don’t actually need?
c) There are people who are just trapped in this. There are people who, through no fault of their own just can’t cover that gap. If that describes you, consider whether you’d rather be getting further into a hole just living, or whether you could go to college or learn a trade, so that while you’re getting into a hole now, there’s light at the end of the tunnel to get out. But it’s a sickness of our world that so many who work so hard do not earn enough to live a decent life.
On the next “Brenda Pontificates”… the importance of disability insurance to younger workers