By Andrew Housser
A few weeks ago, I wrote about tasks to do every day and every week to keep track of your money. Once you gain control of your pocketbook on a daily and weekly basis, it’s a good idea to begin doing a “big-picture” check of your budget every month. You’ll need to do other tasks only every year or so.
By managing money in this way, you will know how much you really have. This awareness will help you to avoid overspending. In turn, you can avoid going into debt, which will help you be better prepared for emergencies. It all adds up to greater peace of mind – and that makes life easier on any size budget.
What to do monthly
1) Review and update budget goals
Go over your income and planned expenditures for the coming month. Think about whether you’ll have any unusual expenses, like holiday costs or a car licensing fee. If so, adjust your discretionary spending to cover these costs, or make a plan for how you will handle them.
2) Work on paying down debt – especially credit card debt
Create a system to pay off credit card debt. Prioritize debts, placing secured debts (mortgage, car) first on the list. A mortgage payment should take absolute first priority. Then list unsecured debts (credit cards, loans) in order of highest interest rates. Make minimum payments on all bills except the card with the highest interest rate. For that card, use every cent of available income to make large payments on that card. When the card with the highest interest rate is paid off, put that payment, plus the old minimum payment, toward the card with the next-highest rate until it is paid off. Continue until you’ve paid off all of your debt.
3) Review where you can save
Review your daily spending to find out where your money goes, and take a hard look at where you can cut back. Discipline yourself to get on track to saving instead of owing.
4) Look into automatic payment options
Automatic payments work well for monthly bills such as phone, utility or rent. Online bill payment or automatic deduction can help avoid late payments. Some lenders and utility companies even provide a reduced interest rate or other rebate for using the service.
5) Bill yourself to add up savings
Remember that saving is a mandatory “bill,” too! Some financial institutions let you set up automatic transfers from your checking account to a savings account. Many employers also will automatically deposit a portion of your paycheck into a savings account if you so choose. Record this expense like a bill every month to painlessly accumulate savings.
What to do annually
1) Review insurance needs
Check your policies once a year for needed updates. Depending on your personal needs and policies, it is a wise move to review insurance coverage for the best premiums every one to two years. Get new quotes to find out if you can save.
2) Check interest rates on savings or money market accounts
While many banks and credit unions have been offering very low rates the past few years, you may find higher returns by doing some comparison shopping online. If your savings are mounting up, consider transferring some funds to a safe savings vehicle, such as a certificate of deposit or bond investment. Talk to a financial advisor for help with your individual situation.
3) Consider an annual utility payment plan
Ask your utilities companies if they offer a level monthly payment plan to avoid the ups and downs of utilities bills as the seasons change. This helps many people stay on budget.
4) Obtain and review your credit report
Everyone should review his or her credit report at least yearly, if not more often. You can get your credit report once a year for free (www.annualcreditreport.com or 877-322-8228). Read it carefully, and correct any errors.
With knowledge comes power, and you will also give yourself the ability to make better decisions about your finances. Little by little, taking charge of your money can help you get out of debt and move forward to a better financial future.