In times of plenty the majority of people were happily spending their way to bankruptcy, even if they were not aware of it. It was not uncommon to see a household with three drivers and everyone had their own car. Or those who purchased a house in hindsight they really could not afford. Now that the economy has turned these same people are struggling to find ways to cut expenses and reduce their losses. How can we try to manage our finances responsibly and cure our love of overspending?
The first advice many financial planners would give any individual looking to control their finances is to create a personal or family budget. A properly planned budget is essential to developing fiscal responsibility. It is important to establish what your needs are and what you would like to spend on your wants. Needs encompass things such as groceries, rent/mortgage payments and other monthly expenses. Movie tickets and soccer practice are wants, you can live without them.
When we ask ourselves about the expenses inside our budgets, we always seem to consider the easiest questions first. Unfortunatley, there are some small expenses that are hurting us and we may not even be aware of them. These seeminly small charges can add up and nickle and dime money away from your budget.
According to 9th Edition of Personal Finance (Kapoor,Dlabay,Hughes 2009) the most popular ways to pay are cash, check, credit cards and automatic teller machines(ATM). However, each comes with its own set of problems. For example many people discover that carrying cash does not allow them to really evaluate how much they are spending. You know the expression about money burning a hole in your pocket, don’t you? Also paying by plastic may lead some to splurge on high priced items without thinking about the fees or penalties they will incur if they do not make the payments.
One key way to manage your finances responsibly is to look at the fees for certain accounts or services that you may be using. If you visit an ATM twice a week at the average charge of $2 per transaction, you are wasting a minimum of $208 a year.
$4* 52 (weeks in a year)=$208
In a high yield savings account that $208 with an interest rate of 1.10% comes to $476.00 (475.904 rounded up to the nearest tenth). The interest rate is current as of April 2010 for an ING savings account.
This simple calculation shows how you could be bleeding money from your budget without even knowing it. This expense can be minimized by using your own ATM as much as possible and asking for cash back when you make purchases. Also rather than accumulate several fees for smaller transactions, make larger withdrawals.
Be aware of the fees your particular account or service is costing you. Are you being charged for coming into the branch office more than twice in a month? Are you paying for calls to speak with the client services people? These are common charges for those with certain types of checking or savings accounts or if you are dealing with a prepaid card service. There are ways to reduce your loss on these expenses as well, even with prepaid cards.
Invest your time in on-line banking services. Most if not all of a financial institutions services are available on-line for free for those who are banking with that institution. By signing up for on-line banking services you can save yourself time and money by setting up bill pay services and obtaining fraud alerts. Bill pay services are an excellent way of eliminating the monetary penalties of not paying a bill on time. Money can be transferred between accounts without incurring monetary penalties as well.
Also be sure that you are signed up for over draft protection. The price of “bouncing” checks can cost as much as $30 each time the check is presented to the bank for payment. Not to mention that most stores have a policy that allows them to assess additional charges for checks that are returned unpaid. The lack of this seemingly small service cost Americans millions of dollars each year.
Managing your money responsibly also mean reporting the loss of bank cards, check books, credit cards or other pertinent financial information as soon as you realize its missing or compromised. By notifying your financial institution in a timely fashion you can greatly reduce the amount of money you are liable for. If done withing two days you are generally only liable for about $50. By waiting to report the loss you can find yourself out $500 or more. It is very important to report the loss as soon as possible to reduce responsibility.
Managing your expenses responsibly is not just about ensuring that you are saving more than you are spending. Its about making sure that you are not being (over) charged for some services and getting free services when possible. Not to mention being sure that someone has not stolen your identity. When managing your finances the details matter just as much as the big picture, Every little bit helps and even a little bit can fill a bank account.