Many of us have said, “I wish I had known then what I do now; I would have done things differently”.
This is particularly true when it comes to money & our financial situations. Money trouble or challenges occur for a variety of reasons:
We spend when we shouldn’t or we spend without understanding the true cost:
As a student, perhaps we used some of our student loan to go shopping. Maybe, we bought things we knew we couldn’t afford because we wanted or deserved it, or signed contracts without reading or fully understanding them.
We spend because we lose our job & spent our financial safety net to survive
Sometimes we end up in money trouble just because of unexpected life events. This has happened a lot since 2008 when people suddenly found themselves with a “pink slip” & not able to get another well paying job. Even if you had the now outdated 3-6 months livings expense safety cushion, it wasn’t enough. Debt piled up.
We spend because we don’t have any other choice; it is a revolving circle:
When debt piles up, we may play the “rob Peter to pay Paul” tactic & move debt from one card to another.
We pay the bills for the services that are the most important to us – housing, electric, phone, gas, & food and hope we can pay the rest of the bills -soon. We hope something will change and actively seek solutions.
We spend to pay high service fees: Fringe Banking, Unbanked, & Under -banked:
The movie “Spent: Looking for Change”, is about hardworking Americans who do not have access to traditional banking services. The film tells us that there are nearly 70 million Americans that are unbanked & financially underserved. They use check cashers, pawns shops, payday lenders, & money order services. These alternative financial services are expensive & those that least can afford it spend more than traditional bank users to cash their payroll checks & to pay their bills.
We spend because we want our tax refund now:
Low to moderate income tax payers pay extremely high interest rates & fees to get some or part of their tax refund now rather than wait a couple of weeks and avoid these needless high expense charges.
The National Consumer Law Center’s website provides the following description:
- Refund anticipation checks (RACs) – RACs are a financial product used to deliver refunds and to pay for tax preparation fees by deducting them from the consumer’s tax refund.
- RALs from non-bank lenders – A few payday and other non-bank lenders are offering RALs. These loans could be more expensive and riskier than bank RALs.
Since the 2008 recession, many people have permanently changed the way they spend their money.
Following are 20 tips to help you make your money go further. This, then will provide you the opportunity to either pay down debt, build a safety cushion, or invest in your future.
Money Management & Spending Tips:
- Some “assets” appreciate and can go up in value; spending money here makes sense
- Other “assets” depreciate as soon as you buy them – cars, furniture; consider buying used or refurbished
- Accountants use a term called “Sunk Costs” which means a cost that has already been incurred & cannot be recovered; limit your sunk costs
- Opportunity Costs: the value of something that must be given up to achieve something else; limit how much you spend on a things that you want; you might need the money later for a need
- Good debt provides you an opportunity to get ahead; there can be a return on your investment; i.e. a mortgage on a home
- Bad debt includes high interest rates on unpaid credit card balances
- Borrowing on credit is expensive; debt makes you a slave to payments; you’re a hostage with limited life choices & flexibility
- Building & Maintaining a good credit score means it will cost you less to borrow money
- Forgo bad debt & instead, build toward your dreams
- When you want to spend instead of save, think about your long-term goals. Is going out to eat, buying coffee at Starbucks, going shopping because you feel depressed or want something new worth adding more debt or forgoing savings?
- Read your contracts & plan for both the best & the worse scenario- can you afford both?
- Know that managing money is becoming more simple and that there are is a lot of free help
- Use the internet to learn more about personal finance- Coursera offers free classes
- Use on line tools to help you determine your best money moves; I have several on my website, on the resources page
- Hire someone to help you understand & determine your best possible alternatives
- Avoid “problem pile-ups”- it is too hard to solve almost anything that way. Choose one thing to work on, resolve, choose another
- Don’t beat yourself up if you made what you consider a “money mistake”. Ideally, we all learn as we grow. This is a normal part of life & it is fully possible to recover & regroup
- Don’t assume you know the answer, because you think “it is true” or someone told you. Look for the answer yourself or try to get your answers in writing from an objective source
- If you are a parent, be careful that you are not unintentionally teaching your children poor money habits by saying things like, “I am not answering the phone, it is another bill collector”
- Sometimes we learned poor money habits as a kid and carried them with us in to adulthood without realizing it. This has become so common that there is a new field of study & help: Behavioral Finance. Learn about this is if it applies to you
Deborah Fox, CPA is working to make financial information affordable & accessible. She helps others improve or protect their personal or business financial health by answering specific money questions. She provides information while building knowledge & practical skill levels for her clients. She is available for local or remote appointments. Thanks for reading.