The word is in. Had it been offered as a course in high school or college, personal money management would have been the hardest subject we ever took.
Maybe that’s why we keep repeating it in the School of Real Life. The most striking thing in the suggestions for personal money management readers sent in during the summer is that absolutely no one thought money management was easy. All of us struggle, as individuals, as couples, as families, to find ways to keep our money from going out faster than it comes in.
One clear message: we have a deep love/hate relationship with credit cards. Some of us want to use them for everything, even as a basic budgeting tool, while others want to live on a cash basis. We may need an Airmiles Recovery Group.
Here are some of the basic themes. We’ll continue with others in the Tuesday column. If you want to vote for the best and most useful, go to my website and vote your choice.
Basic Rules. (1) Participate early in your 401k plan and be consistent with contributions and oversight of your investments. I started participating at age 24 (now 36). You can NEVER get back the incredible compounding effect if you wait until later in life to save.
(2) Pay off credit card bills immediately, in full. I think of my credit card as a 30-day convenience alternative to cash and a nice way to accumulate miles, not a way to purchase things I can’t afford.
(3) Buy less house than the mortgage formulas say that you can afford. You’ll sleep better and not have a strapping mortgage payment every month.
(4) Keep automobiles for several years for the lowest cost of ownership. (I’ve had my last two cars for nine years each.) No matter what the lease marketers tell you, keeping a car for several years (versus getting a new one every two or three years) almost always results in the lowest cost of ownership.
(5) Diligently research “big ticket” items and never buy on impulse or emotion.
(6) Always view yourself as your greatest asset. Invest in yourself through lifelong learning, challenging assignments, education, and certifications.
—Toby Todd, Plano, TX
Credit Card Use and Control. I like to use a credit card for all of my purchases. The monthly statement gives me a record of everything I’ve spent so it can be used as a budgeting tool. In order to ensure that I don’t spend more than I can pay off at the end of the month, I IMMEDIATELY subtract anything put on the card from my checking account balance, and pay off the balance at the end of the month.
This accomplishes three things: (1) gives me a printed statement of all my expenses at the end of the month, (2) lets me float on the credit car’s money (If I had written a check, it might have been cashed immediately while the credit card bill doesn’t come until the end of the month and it takes another 1-2 weeks before those checks are sent through the bank.) (3) It earns me free airline miles.
—Craig Helm, Graham, TX
Evaluate Purchases by Cost Per Use. My favorite savings tool is to compute the cost per unit of wear/use/enjoyment. I buy my clothing, furniture, meals out, etc. with this cost in mind. It makes much more sense to spend $50 ($0.50/day) for a pair of slacks I can wear the work 100 days than to spend $50 for a dress that I can wear one evening at Christmas time ($10/hour). A good chair that I will sit in three hours a day for 10 years is well worth $500 (about a nickel an hour) compared to $500 for a better printer and software for my computer which may be used twice a month for one hour for three years (about $7/hour).
—Frances E. Watkins, Dallas, TX
Using “Extra” Money. Dedicate a portion of raises and windfalls, such as bonuses and tax refunds, to mortgage prepayments, provided that tax deferral plans are being fully funded. The advantages are:
- Learning how to live on less than total income.
- Making saving a habit.
- Flexibility, because prepayment amounts can be increased or decreased when circumstances dictate.
- Never paying a lot of mortgage interest.
- The potential for paying off the mortgage far enough prior to retirement to use the funds for other purposes, such as investments or tuition.
— John Ferguson, Richardson, TX
Photo: Mikhail Nilov
(c) Scott Burns, 2022