Better Money Management

For the first time in my life, really, I am being smart with my money. There are many factors contributing to this, but I think the key recently has been frequent and small transfers to pay off debt and into savings.

What I have been doing is every few days I’ll log into my credit union’s website and look at my checking account balance. If I notice that I have breathing room, which I almost always have, then I’ll make a transfer into my savings or pay off some debt. Previously I would get paid and be overly ambitious on putting money into savings or paying off debt, and only do it once per month. So what would happen is I would run out of money in my checking and either have to put money on a credit card or empty out my savings again. Now what I have been doing is when I get paid, I still put in a larger amount of money. But this time it might be $125 to pay off debt and $125 in savings. Three days later I might log back in and put another $50 in savings. Getting close to the next paycheck I’ll see that I have plenty of money left in savings and maybe transfer out another $100 or $200.

This gives me a better idea at all times of how much I have. I also am good at thinking of the next several days of expenses but not good at thinking of a whole month’s expenses at once.

Also to prevent taking money out of savings I try to keep at least $200 in my checking account at all times. The only time when it should get this low, anyway, is right before my next paycheck. And anything that needs more money than this can easily wait an extra couple of days.

I’ve also made it much harder for myself to borrow money. Probably about a year ago I canceled my two credit cards, having paid them and another loan off with a debt consolidation loan. So I haven’t borrowed any new money in this time. I only have this and one other loan to pay off currently, the smaller of which should be paid off in the next two or three months.

By the time I get this smaller loan paid off, I should also be pretty close to having three months of living expenses in savings, which is my short-term goal. In this case, any extra money I have will be able to go into my debt consolidation loan, which will make it easy to pay this off very quickly.

I should make a small point. As personal preference, and after seeing it suggested in at least two places, I’ve decided that a good strategy is to pay off smaller loans first even when they have slightly smaller interest rates. Certainly if it was 12% vs 19%, I’d pay off the 19% first. But in my case, twice now I’ve chosen to pay off a loan that was .5% to 1% lower interest rate first. The reason for this is this makes it less to worry about, less to manage, and less chance for late fees and such. Better for my peace of mind 🙂

I’m very excited to be debt-free. But I also get excited each time I pay off more of a loan or put more money into my savings. It feels really good. Once I am debt-free (hopefully in about a year), all of my extra money will go into savings. I don’t intend on working eight hours a day, five days per week my whole life (at least, not for someone else), and being able to consistently save money while I am working will allow me to live off of these savings for months or years at a time while doing something that isn’t making me a ton of money. Like school full-time. Or going on a cross-country bicycle trip. Or traveling the world (frugally, of course). Or spending my days reading and writing (self education). Or finally starting to write that video game that I’ve wanted to write. The possibilities are endless, and the decisions that I made today, and day-to-day will help me realize any number of these things more fully and for longer periods of time.

You might be asking yourself why I would choose to not have any credit cards. Having a small number of credit cards in good standing and with a balance of about 40% (I think) of its limit can help your credit score. Well, I try to think of things in terms of risk/reward. In my case, the risk of having a credit card was higher than the reward of a higher credit score. After I am completely debt-free, I will worry more about improving my credit score. As it stands, my credit score is good and landlords in Mags and my recent apartment search have been eager to have us as tenants due to our credit scores. So it isn’t a huge concern right now.

Of course, you can’t save or pay off debt unless your expenditures are much less than your earnings. I am comfortable with my earnings. Comfortable enough that I have recently turned down an opportunity to greatly increase my earnings (because I love my current job). As far as expenditures, I have cut down on them significantly since I moved to the city. When I first moved here, I had a one-bedroom apartment in Russian Hill. I had a car, too. I didn’t really think about how much I was spending and why. Now, I am splitting my studio apartment with Mags (in the Tenderloin), I don’t have a car, and in many other ways I am spending less just by constantly being aware of how much I am spending, if I could get the same thing for less somehow, and if I really even want or need what I am buying. It certainly helps that I enjoy my more frugal lifestyle more than my more extravagant one, even if you were to ignore the money aspect. I avoid driving as much as I can as it tends to stress me out and make me depressed. The driving, suburban lifestyle was, after all, the primary reason why I escaped the Maryland suburbs. I also enjoy communal living, and too much space equals too much stuff and too much clutter, which also depresses me. So it all works out well in this case.

Of course, it has taken me too long to get smart with money, but it could have taken a lot longer or never happened, as happens with a lot of people, so I feel fortunate of where I now stand.

• Glad to see you writing again and this is very interesting.

• Haha I thought you might be the first to comment 😉

• so here’s what I emailed you, let’s see if it is still applicable:
  a) pay off 1 credit card with a balance transfer to another – this usually earns you a 0% interest rate for 6 months to a year… or something VERY low (mine was .5%, way better than 19% i was paying on the other one)
  b) consolidate all your stuff – it looks like you know that one, that was important. putting all of your debt into one place, with a low rate is the best way not to be paying % to several places… your payments go more towards your debt, not towards their jet (heh, that rhymes… i like that!)
  c) freeze your cards if you have to… you don’t have to do this literally, but some people do the old Put your credit cards in a bag of water and freeze the bag trick…
  d) try multiple savings accounts – that’s why i started the smartypig account… i figured out how much i will probably need for a refinance of the house, and when i want to do it, and smartypig automagically withdraws from my account, right on payday, and puts it in a savings account for me… i never see the money, i can’t spend it. i only just started it, but i’m hopeful it will work out well, hehe

  the last thing is that i’ve been following a lot of people on twitter that talk about it, also, stealing my dad’s Money magazines, hehe. this is one that i’ve just started reading, she (i think “she”) had a lot of debt and worked her way out of it… it’s pretty impressive (i certainly can’t seem to cut back like she has…) – she has a lot of links to other money blogs too:
  http://moneypenny.me/