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Managing Your Finances Part I

J. D. of Get Rich Slowly posted recently about his aversion to credit cards in general. As I mentioned in his comments, I really do not understand this. While I'm no stranger to money worries, I don't weight my finances particularly heavily when it comes to things that have a psychological impact upon me.

Money is easy to understand. It's just a bunch of numbers. Numbers add and subtract nicely, and it's easy to keep on top of your money since it can all be summed up in a couple of nice numbers. There is no reason to be afraid of numbers. A good part of people's fears over credit cards, and their use of irrational debt-reduction strategies, seems to stem from a lack of a feeling of control. Once again, my belief is that since money can always be expressed in terms of simple numbers, it is easy to control your money. I will start a small series with my tips on how I manage my money; I rarely ever worry about anything financial any more because of how I use my system.

Management Tip #1: It's Not That Hard to Balance Your Checkbook

Ok, I admit it: when I was in college, I never balanced my checkbook. I always just looked at the online account management system. Since I wrote very few checks, had just one job, and paid for almost everything with cash withdrawn from the ATM, I knew that the online account balance was almost always up-to-date.

However, once I got out of college and had things like a variable income, car payments, utilities, multiple credit card payments every month, automatic withdrawals, and the like, I decided to get tough with my checkbook ledger.

First off, because I pay for most things with my credit cards (which will comprise Tip #2), I really don't have that many things to write down. Looking back over the past couple of months, I have been using about a page per month in my ledger. That's about 15 things per month, which is not much at all. In some months it's been as few as 10 items per month. I can give a rundown of an average month:

  • 2 deposits (paychecks every 2 weeks)
  • 1 auto-withdrawal for car insurance
  • 4 credit card online payments
  • 1 car payment (check)
  • 2 rent/utilities checks (most utilities go on a credit card automatically)
  • 2 ATM withdrawals
  • Total: 12 items
As you can see, by not using my debit card for any transactions, I keep my number of checkbook ledger entries very low. This turns my checkbook ledger into a "birds-eye" view of my day-to-day expenses. I never see the specific amounts that I pay for things at the store, but I see my overall purchase level and a bit of a breakdown into general categories: rent, gas, food, etc. (I use certain credit cards for certain things, which I will detail in Tip #2).

By keeping my level of ledger entries managably low, I am never intimidated by the thought of balancing my checkbook. Every week or so, I log into my bank account and check for things that I might have forgotten to enter. I always have a surplus of a few thousand dollars in my checking account, so I never have to worry about bouncing a check or or having insufficient funds for an online payment. I know that this is somewhat inefficient (since that same money could be in a savings account with a decent yield), but for the time being it is good enough. I am working on plans to keep lower amounts in my checking account, but it will require more sophistication with my payments and transactions back and forth between savings and checking, which I don't have the time for right now. As it is, when I have too much extra, I will transfer some to savings or make an extra-large payment on my car. Once my car is paid off, I will get serious about the "float" and keeping more money in the savings account rather than checking.

1 comment:

Stephanie said...

I was going to ask how the debt snowball plan qualified as "irrational," but then I clicked the link to double check. I'm with you on this one. Paying the one with the lowest BALANCE first, instead of the HIGHEST INTEREST rate, doesn't make sense to me, either. The idea is to save yourself as much money as possible, and get everything paid off as quickly as possible. I get more of a psychological boost from that idea than I would from "Wee! I paid off one debt already!"

But I guess for some people, it's just what they need to do.