Wednesday, June 14, 2017

Managing Money Wisely

My grandfather taught me "A penny saved is a penny earned."

A few years ago I took a money management course in conjunction with refinancing my mortgage.  While they had some interesting things to tell me, through experience I had already put a lot of their tips into practice.

As background, I have been identity thefted and know how cumbersome it is to correct what someone else has attempted to do to your credit worthiness.  Luckily, in my case I caught it early because I put into effect one of the most important ways to use your money wisely.  That is to keep an almost obsessive compulsive check on all of your banking and credit accounts.

In my case, I keep an excel spreadsheet that outlines all of my income, bank accounts and monthly bills.  I check my bank balances every day online and match those against what payments I have scheduled or sent checks and what has cleared my account.  If there is a discrepancy, I make a note of it and check the same a few hours later.  If the discrepancy continues, I then contact the bank or vendor to question what has occurred and to make sure it was something that was legitimate.

On the spreadsheet, I have notated the date a bill is due and by color coding if I have scheduled the payment and with another color code if the bill has cleared my bank.  In another column, I keep track of what the bank shows as my balance and what payments have not yet cleared the bank.  This tells me how much money I have free to spend on other cash expenses such as food, prescriptions or gasoline for the car.

I had been in the habit of using my debit card for cash expenses and getting rewards for using that card.  Recently, my bank terminated the practice of giving rewards for using the debit card but are giving rewards for using my credit card with them.  As a result, I have started moving the cash that I had used to pay bills to my credit card by making payments in advance to cover certain bills.  This way, I am continuing to get the rewards for using my card.

Now here is a tip that I learned at the money management class.  I'm not totally in agreement with using this method but this is what they told me.  When you are paying your mortgage, you are delinquent if you don't pay them on the date the payment is due or prior to that date; but, it is prudent to hold off making that payment until just before the end of your grace period.  Like I said, I don't totally agree with this but as it was explained, this gives you more control over the usage of your money.  You do what you think is prudent.

I have paid off my mortgage due to an unexpected insurance claim.  Because I no longer have a mortgage, I am now able to pay down some of my credit cards with the money that was being used for that payment.

I have taken great care to make sure that my payments are on time and to some extent paid well in advance of my due dates.  This keeps the credit reporting agencies happy and really does have an impact on your credit score and worthiness.  The other toss of the coin, is that you should never owe more than 20% of your credit limit on any account.  It's the old adage, if it appears that you don't need the money, creditors are more apt to loan it to you in bigger abundance.

Another thing to watch is the type of credit cards you are holding.  Try to acquire cards that don't require an annual fee and have the lowest interest rate.  As you use your cards wisely and your credit score climbs, you will be offered cards with better rates.  If you decide to take the offer of a lower rate, pay off the card that has a larger interest rate but don't close the account.  By doing that, you have a larger amount of available credit and still only owe the original amount.

I took out a home equity line of credit that has a much smaller interest rate than any of my credit cards.  With the money, I paid off store cards with high interest rates and a couple of my credit card balances.  With this money, I now pay the monthly payment required by the bank towards my interest and make additional payments against the principal.  As I pay off the amounts I used to pay off each card, I then pay off an additional card with the next highest rate of interest again using that payment money to pay against the Line of Credit.

As you pay off your debts, take the money that you used to pay those bills and put a percentage away each month in an interest bearing account.  Be sure to notate what you are saving this money for so that you are less apt to go on a spending spree.  With the remaining percentage of the previous payment, pay down another creditor until it is paid off.  Each time you pay off a creditor your credit score gets a little better due to your income to credit ratio.

I have now put interest rates next to my creditors name on my spreadsheet.  When I am making a larger payment to pay down my credit card debt, I pay more on the ones that have the highest interest rates first.  On another note, I get invitations from banks every day for additional credit cards with transfer of balance offers.  Some of these also give rewards.  I have found that these normally carry higher interest rates and I shred everything that I get like that before discarding them.

It all boils down to knowing at all times what you have as assets and using them to your best advantage.

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