Thoughts On Handling Your Personal Economy
25 Nov 2008One thing I've tried to pay attention to for the past few months is my money. I've never really paid attention before, other than to make sure I had enough in my checking account to pay my bills. The rest just got dumped into savings, and that's about how much attention I paid.
Earlier this year, I started thinking about getting a condo and that forced me to think longer-term about my money. Could I be doing more with it? Could I do better with my bills in some way? Could I even afford a condo?
About that same time, Mint opened up. Putting aside my reservations about giving a site access to my finances, I decided to dive in and give it a shot. Surprisingly, it's been incredibly effective for me in helping me to manage and understand my money. It's been helpful for one simple reason: it let's me see my money and where it's going.
Maybe it's appropriate for some quick background:
- I don't spend money frivolously. I spend too much money eating out lunch and dinner, but I don't spend much on clothes, or shoes, or video games. So while I don't watch every dollar that leaves my wallet, I also don't worry that I'm needlessly throwing money away.
- Coming into this year I had three major debts: my car and two student loans.
- The only real investment I had coming into this year was the 401k from a previous employer.
When looking at what I could do to make an immediate difference in my finances, I started with the easiest and most obvious one:
Don't keep money in your checking account.
My checking account earns very little interest. My savings account earns a little interest. A little > very little. Over the course of the year, you might make a few hundred to a few thousand dollars by having your money primarily in your savings account. The way I deal with that is logging in and moving money around once I get over my "safe zone." I basically have decided what it is I need to have in my checking account to pay my bills and cover my debit card usage. Whenever my checking account gets over that level I move the excess into my savings account.
It adds up fast. It also gives you incentive to save money once you see that you can move larger and larger chunks into savings if you're thrifty.
It sounds stupid. It helps.
The next, rather obvious thing I learned was ...
Pay off your debts.
I had three debts coming into 2008. My car loan, my federal student load, and my private student loan. My car loan was scheduled to finish in April 2008. My federal loan in 2010. My private loan in 2010.
I started setting aside a little extra money such that I could make bigger dents in those loads. Hey, why pay interest on a loan when that money could earn me interest?
As of this morning, I've got no loans. I paid them down in chunks and got rid of my debt. Now rather than sending that money off to someone else, it's going to sit in my account where I can do something better with it.
Make your bills smaller.
This is the easiest one, and can be the most fulfilling. Got extra cable channels you don't watch? Call Comcast and move down a tier (and then rent those shows on DVD or watch them online). Better yet, tell Comcast you're going to move to FIOS and have them move you into a better deal. If that's not an option for you, just drop down a plan. There are a number of inexpensive, mostly legal ways to watch the shows you want. Figure out what you need and if Comcast won't meet it, drop services until you get down to your number.
Do you need a landline with your cell phone? No? Cancel it.
Do you need to have unlimited text messages on your cell? Could you get by with the next level down? Drop down.
Oil/electric/heating bill too expensive? Put your extra computers on standby when you're not using them. Install an electronic thermostat and drop the heat when you leave the house.
If you can drop your bills an aggregate of $100 a month, that's $1200 a year. Again, this is all common sense and sounds stupid, but it adds up.
Use Mint
Bite the bullet. Sign in, take the time to put in your accounts. Watch your money in aggregate to see if you notice anything you can do to help yourself.
None of this is rocket science or life changing. It's just simple stuff I've done to get a better handle on my finances, which is useful given what's going on in the economy. I know my weaknesses: I've got very little invested because I'm not strong on the markets or investments. I'd like to be, it's just not something I'm good at now. My 401k has taken a bath, but so has everyone else's. I'm trying to keep an eye on it to see if there are small things I can do to make improvements in the short-term to get through this downturn.
That's what I do. I'm sure I'm missing stuff, and I'm not a financial expert, so accord this advice as much value as you'd give any other free advice you'd get from a stranger. Or, if it makes you feel better, send me money and then you won't have to consider it free advice.