BASIC GUIDE TO SMART MONEY
MANAGING FINANCES
- "Pay yourself first." Put 10 percent (1/10) or more of your take-home pay into a separate savings account. Restrict use of this account to true emergencies and to saving for your retirement.
- Pay off high-interest loans (like pawn shops and credit cards). On credit cards, pay the entire balance each month so that you never pay interest. (You should not have to pay an "annual fee" for your credit card. If your current card charges one, shop around. The Federal Reserve Board shows the results of their survey of credit cards on their site,
http://www.federalreserve.gov/pubs/shop/survey.htm)
- Minimize banking fees. Open an account with a bank or credit union that doesn't charge service fees. Make your ATM withdrawals at free machines.
- Assess your insurance plans. Do not duplicate insurance provided by your job, and take out only the amount of insurance you and your family need. (The law requires some kinds of insurance.) Compare prices each year for better premiums. (Your situation may change, and rates do change.) The Insurance Information Institute gives tips on picking a reputable insurance company. Once you have established an emergency savings account as above, increase your deductible on some insurance to reduce premiums further. It is often not worth the premium to carry collision insurance on a car worth less than $1000.
- Take advantage of every discount available to you. Many insurers will give you a 5 to 15 percent break on your homeowners policy premiums if you give them additional insurance business--for example, by buying your auto insurance from the same carrier. Completing a defensive-driving course can further drive down your auto premiums. Ask your agent about discounts for automatic seatbelts or air bags. And if you have teenage drivers, you may get a break if they have good grades or attend a college more than 100 miles from home.
- When looking for a job, remember that your "compensation" is more than your salary or wages. If you can choose between job offers, study how much each would give you in insurance, retirement plans, and other perquisites such as day-care. Then, if your employer matches your retirement contribution, contribute enough to maximize your employer's share.
- Quit smoking. A pack-a-day habit can easily cost $1,000 a year. That's money that can go right into your bank account. And you may save on insurance and health care.
- Save on utilities. Consider turning down the heat or air conditioning at night and while you're at work. Fix leaky faucets.
- Analyze your phone needs. Don't get trapped in a long-term contract for a cell phone unless your business requires you to take calls when you are away from home. At home, do you really need more than one phone line? (Probably not.)
- Avoid using directory assistance. At 30 cents for local numbers and as much as $2 a pop for long-distance numbers, the fees can really add up. Instead, use your phone book (or 1-888-373-3411 or 1-800-373-3411) or free Internet directory-assistance services (like www.free411.com/). Once you learn a number, write it down for future use.
- Be energy smart in the kitchen. Right-size your cooking. When baking small portions, use a toaster oven or microwave oven instead of a conventional oven. When using the stovetop, match the size of the pot to the burner size. Put a lid on it: covering a pot brings the water to a boil more quickly, also saving energy.
- Comparison shop. Don't cut corners with your favorite groceries — you won't save for long if you feel deprived. But do compare. For example, generic products often have the same ingredients as brand names yet cost less.
- Buy in bulk. Larger boxes usually cost less per serving. Team up with friends so items don't go to waste before you consume them.
- Be smart about entertainment. Use your local library to borrow books, music, and movies. Look at the paper to find free events. Eat out less often, and skip snacks from vending machines. Before signing up for any cable TV, check your reception with an in-door antenna and think about what programs you must watch. Premium cable plans are particularly expensive.
- Avoid instant gratification and impulse buying. Even if you see a "bargain," don't put luxuries on your credit card. Wait until you've saved enough cash for major purchases. You'll save hundreds of dollars in fees and interest. Make a list of clothes you need and stick to your plan, or give yourself a monthly clothing allowance.
- Before you promise anything, understand everything in the agreement. Before you sign a contract or purchase agreement, know what is in the fine print and be sure that you will be able to follow through. Figure out how you will make installment payments before you accept the obligation.
IF YOU ARE SURE YOU NEED A CAR
- Buy used. You can save $10,000 by buying a car that's just a few years old and investing the difference between the price of a new and used car.
- Keep your old car. Put off buying a car for a couple more years. If you pay off your car loan, continue budgeting the amount of your monthly payments but transfer them into your savings account for a new car.
- Slow down. Flooring the gas pedal wastes gas and adds wear to the car.
KEEPING GOOD CREDIT
- Know how much you owe on all of your accounts, including credit
cards, car loans, and student loans. Keep track of what your monthly payments are. If you have a timing problem between your pay date and your regular bill due dates, try to shift the schedule of payments.
Keep your regular payments well under your regular income. If your net income is not covering all your expenses, do not expect a miracle to save you: either cut back on spending or increase your income.
- If you have a problem with making a payment on a loan, contact your
creditors immediately.
- Pay bills on time. Avoid skipping some bill payments to pay others.
- Unless you really want to become responsible for payments, avoid co-signing on loans and leases that are not yours.
If a loan becomes delinquent, a collector can choose to call you and harass you, rather than your friend or relative, if the collector sees that you have a better repayment record. Even if the loan is repaid on time each month, another lender may consider the amount of debt that you co-signed when determining if you already have borrowed too much.
- Obtain a copy of your credit report once a year (free).
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