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 Since I wrote very few checks, had just one job, and paid for almost everything with cash withdrawn from the ATM, I knew that the online account balance was almost always up-to-date.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.