How to Permanently Improve Your Finances
The experts say that we should have at least 6 months income in liquid savings, just in case, maybe more nowadays. I know I didn't have that. When I started with the Gradualism method, I had exactly .34 in my savings account.
Gradualism is no get-rich-quick scheme, but over the years, I have averaged greater savings than when I was taking more risks with my money. For those just starting out from zero or even in the red, here are some ideas:
- Get a quick personal finances education
- Keep the change
- Learn the current credit game
- Reward yourself
- Be cheap
- Sell your stuff
I'm not talking about a degree in economics, but a free community class on how savings and credit work could save you mega-thousands over your lifetime. You must understand credit and its ripple effects to avoid flushing money down the toilet.
As an example, because we started establishing my daughter's credit history early, she was able to buy her first new car at 3.5% interest, which after her down-payment, she paid off in 3 years. Someone with a poor credit rating could have paid double the price over the length of the loan - money down the toilet. To read how to establish your child's credit early, see my article: Create Your Child's Credit History Early.
Keep the Change
- Ye old change jar: Again, know thyself: if you're the type that sees money and has to spend it, use a box or tin or piggy bank; if you're the type who likes to see their rewards grow, use a clear jar. Empty your pockets and wallet, purse, chair cushions (whatever) every night and drop the change in the jar. Nearly every bank and other retailers now have those coin counting machines so that you can just dump the jar contents into the machine, and the change is turned into bills. Put that money into your savings account immediately, so as to avoid temptation.
- When I opened my small business checking account, I signed up for the "Keep the Change" program, where for every purchase on your debit card (and who uses checks anymore? I don't.), the remainder of the dollar you spent is automatically transferred each day into your savings account. So, if you spend $73.14 on groceries, the bank rounds that up to $74.00, and puts the .86 into your checking account. It's money you don't even notice, until you look at your online account, and see the savings growing.
- But, the best part (more money for free): For the 1st 90 days in the program, my bank matched every Keep the Change amount that went into my savings account - doubling my savings - with no obligation to me. (Also, note, that the checking and savings accounts had no charges associated with them - never pay a fee for a checking or savings account - always ask what the alternatives are. Students get free accounts, small businesses get free accounts, the average joe who opts for direct deposit of any kind of funds gets a free account. Aask questions. If they can't help, there are plenty of banks and credit unions out there that can.)
The Current Credit Game
Banks have have gotten such a bad wrap in national news over the past few years, it seems they are trying to buy our favor back. Take advantage of it!
Four recent real experiences:
- My daughter who has maintained a bank account for a few years, saw an online offer to apply for a 0% interest (12 months), no fee, cash back credit card. All she had to do was spend $500 within the first 90 days, and they plopped $100 into her account, plus she received cash awards on every purchase, so within a month, she had earned $125 free and clear (having paid off her balance), and decided to transfer it to her savings account as 'found money.'
- A not-as-prominent bank (basically an online savings-type bank), offered me $50 to sign up to one of their accounts that gave me a credit-type card to access my savings funds if I wanted to. I didn't really understand why they'd want me to take my money out of their bank, but there were no strings attached. So, I signed up and earned $50, which I transferred into my savings account with them. Cha-ching.
- A friend of mine who has a credit card account in collections, was sent a letter in the mail that included a $50 Visa gift card. All she had to do was call and talk to a representative about her account to get the card activated. She did that, set up a very reasonable payment plan, and her gift card was activated immediately, right then over the phone - just for talking to some nice, understanding woman. She quickly went out and used up the card, and I don't think she ever met her payment arrangements, but I was amazed that they would just give her, a way-past-due account holder, $50 free and clear.
- I have personally been quite successful at getting my current credit card rates lowered. All it took was a call to the bank. I told them I was being offered a zero annual fee, low or 0% interest credit with a competing bank. I would like to stay with the current credit card company, but . . .. Two separate banks were happy to meet the other offers, thus lowering my interest rates and fees considerably.
So, this is the banking environment we're dealing with today, and if you play your credit cards right, you could be earning free money - and hopefully, you'll add that money to your savings.
I really understand the strong pull of a want (vs a need). There was a chair I wanted a while back, and my mouth watered when I looked at it, I dreamed about it, I had it in my living room (in my mind), I told my friends I'd rather not eat for two weeks and buy that chair. (Actually, it would have been three weeks, and I don't think people can live that long without food.) Anyway, you get the point: there are certain things in life we really, really want - but don't need. What we do need is to start saving more money.
So, here's where you reward yourself. I had connived and connived and figured out how to buy that chair. A third of it I was just going to eek out of my paycheck (lowering a few other expenses - like groceries.) The other 2/3 I was going to charge, and pay off later (well, hoping I could pay it off later.) I came so close to pulling the trigger on the purchase, but slept on it, woke the next morning with better sense, and decided I could live without it. Therefore, my reward was twofold: I didn't have to worry about the debt (a feeling of relief), and I transferred the 1st third instantly into my savings account online (feeling proud of myself). I still had to lower those other expenses I had worked out previously, but it was easier now that the money was out of my checking account.
So, get in the habit of repeating this practice in every part of your life:
- If you pass up a 'want,' put that money in savings.
- In the grocery store, if you start to reach for the expensive cheese, but instead move your arm over to the generic and buy that, mentally (or in a notebook), note the price difference, and when you get home, transfer that amount from your checking to savings.
- Whenever you return an item to a store because of buyer's remorse or just plain good sense, put the returned amount in your savings account.
- If you combine trips, avoid driving, start using a bicycle for short trips, estimate the savings, and put it into your savings account.
- If you brave Walmart rather than your favorite gourmet grocery store, estimate the total savings on your grocery bill, go home, and immediately transfer that amount into your savings account.
- If you call your credit card company, your wireless provider, your cell phone company, your cable tv provider and tell them you're seeing better rates with another company, and they match those lower rates, but the difference into your savings account every month when you pay the lowered bill.
- If you used to make payments late or incur an average of x number of overdrafts per month, and are able to stop doing that, put that amount that you normally would have been charged into your savings account.
- If you were about to buy a new black skirt for work, but your friend gives you one she doesn't want anymore (recycling), put the money you would have spent into your savings account.
You get the idea, and I'm sure once your mindset is in the right place, you'll figure out more ways to quit wasting money and to reward yourself while watching your savings account grow.
Sell Your Stuff
You know you have a ton of things sitting around that you haven't used in a year or more. Time to make some money off of that, and put it - you know where by now.
Try not thinking about how much you paid for it originally, think about what you would consider a score if you were browsing for this item. Plus, remember, right now, sitting in your closet or jewelry box or basement, it's worth zero.
I personally have had much better luck with local sales sites like Craig's List, rather than the large national ones, like Ebay. CL doesn't charge any fees to buyer or seller, the listing is SO easy, and people pick it up right from your home (no shipping hassles). I can sell things for less that way since I don't have to pay a percentage to the large company, wait for payment or settle disputes for non-payment, pay listing fees, drive somewhere to ship a package, wait for PayPal to transfer the money to my checking account, etc.
Take a Breath and Be Patient
Patience was my worst quality until I was laid off. And you know, necessity breeds creativity. So, having taken too many risks with my funds in the past, I was starting from zero (well, .34) and decided to try this new method of Gradualism. (To better understand the Gradualism concept, you might want to read this article: Gradualism Works for Me.) The slow and steady, frugal living method worked for my grandparents, and it is working for me.