Managing money well

[Tim]

Hey guys. I've been pretty terrible at managing my finances over the years. Being a poor student for a while didn't help, but even in the last couple of years having a job I've still been pretty crap with it. I've employed certain techniques to save more effectively, such as having automatic transfers to other accounts I can't easily touch on the day of payment. Unfortunately I often bypass this and end up spending money that I know I can eventually pay back to those accounts.

I've gotten better over time at making sure I have enough money when I really need it e.g. plane tickets, desperately needed new clothes, etc, but I'm still not very good at it.

So my question is; have any of you guys who were really bad at saving money and managing it managed to get much better at it? To the point where you feel you have full control over it and don't have too much anxiety over your finances?

Thanks in advance.

[questra]

(04-15-2012 12:54 AM)Tim Wrote:  Hey guys. I've been pretty terrible at managing my finances over the years. Being a poor student for a while didn't help, but even in the last couple of years having a job I've still been pretty crap with it. I've employed certain techniques to save more effectively, such as having automatic transfers to other accounts I can't easily touch on the day of payment. Unfortunately I often bypass this and end up spending money that I know I can eventually pay back to those accounts.

I've gotten better over time at making sure I have enough money when I really need it e.g. plane tickets, desperately needed new clothes, etc, but I'm still not very good at it.

So my question is; have any of you guys who were really bad at saving money and managing it managed to get much better at it? To the point where you feel you have full control over it and don't have too much anxiety over your finances?

Thanks in advance.

Hey Tim,

I used to face the same problem, I'd spend every cent of my salary and would be really anxious at the of the month for my next paycheck.

The only thing that's ever really worked for me is paying off all my commitments, debts and whatever I needed to do as soon as I got my paychecks. And stash away the amount I needed to save elsewhere. Stashing it in a different account doesn't work for me - I'll just withdraw it again somehow. So I'll put it in Fixed Deposits, Bonds or Company Stocks where it's not in the 'easy to withdraw cash' form anymore. I've found that I tend to spend whatever amount of money is left in my bank account - so I'd just leave X budgeted amount (for food, entertainment, shopping) in my bank account every month.

Another thing you could try is forcing yourself to save through a 3rd party like a mutual fund company? If you sign up for automatic deduction every month - you'll never actually see the money and it's not just being saved - it's being invested.

The other thing would be self-control on credit cards. Thankfully, I've never had that problem overspending here, but I think it's better off not having them at all if they become a problem.

Hope this somehow helps.

[Alvar]

I wasn't ever bad with money but 3/4 years ago the situation was pretty tight. I started an excel spreadsheet, detailed all my expenses for the month. Seeing exactly where every cent was going had a strong effect on me. Eventually that led me to amass some savings when my income went up, because I got used to appreciate many of my strategies. There are some home finance tools that can do this for you (like mint.com or some other), going as far as pulling your data from your bank account and CC. I even downloaded one program but never used it, I think going through all the work to collect and input the data myself actually benefited me.

Once you know where your money is going, you may want to cut some of your expenses by 10% (don't try too much at once, otherwise you're setting yourself for failure.)

Something that works for me is pre-committing to a decision and sticking to it. For example, back in the days I took a decision that I would only drink 3-4 beers, when out at night. For the most part I've stick to it, sometimes I got drunk but nothing outrageous. Nowadays I find myself drinking a bit more so I am seriously considering taking only cash with me - just enough for 3 beers and to get me in.
If you find yourself overspending wherever you are in bars/supermarkets/any other store, consider leaving your cards at home. If there's something pretty cool, it will likely be there when you return the next day.

I've never had problems with credit cards but I heard of techniques like giving up on CCs but one, and freezing the remaining. While you are waiting for the ice to melt make sure to eat a good meal, glucose in your blood will increase your willpower and help you make better decisions.

Quote:Unfortunately I often bypass this and end up spending money that I know I can eventually pay back to those accounts.

I used to be so guilt of this behaviour, don't fool yourself. You must committed to make a payment regularly, not an average payment. If you fail, assume it, don't sweeten by saying that you'll pay twice the next time. You don't skip a gym session and say "I'll be there twice as long the next time", do you?
Yes, you can pay twice the next period but, the current one, you missed it. Naughty Tim If you still find trouble making these payments you may consider asking a trusted person to help you.

[Jani]

Just earn more money!! Saving that causes to degrade your lifestyle isn't smart, it's plain old stupid.
Saving is overrated. It's important, but overrated.
You'll never gonna save enough for financial security. Cash flow does that.

[TheBoss]

(04-15-2012 01:33 PM)Jani Wrote:  Just earn more money!! Saving that causes to degrade your lifestyle isn't smart, it's plain old stupid.
Saving is overrated. It's important, but overrated.
You'll never gonna save enough for financial security. Cash flow does that.

More money is nice, but it is not a solution for poor financial management. Every month you hear a story about an ex millionaire athlete filing for bankruptcy. Or just look at Nicolas Cage, who makes millions a movie and is broke.

You should always aim to live below your means no matter how much money you have. It doesn't matter whether you're earning 40k a year or 400k a year. You cannot spend more than you earn.

Unfortunately, with the rampant uses of credit card, living above your means is now the norm.

Calculate your total monthly expenses (rent, phone bill, car payments, loan payments, insurance, gas ,etc) and your total monthly income to see how much your disposable income is. Then try to figure out where is the rest of it going.

Maybe you're buying too many new gadgets, clothes, etc. Or maybe you're just eating out a lot. See where you can cut expenses.

Also, don't ever just pay the minimum on your credit card. Interest rates on credit cards are huge, and if you have a big balance it can really fuck you up. Aim to pay the entire balance every time.

[Jani]

Off course, money is a mindset.
But instead of focusing on saving, focus on earning more. They are both techniques, but with very different outcomes.

[IdEngager]

I have to disagree a bit, learning to save properly is more useful that simply earning more (I say this as my own personal finances have buoyed a bit recently by unexpected earnings, which is awesome too).

Total financial security isn't likely these days unless your career goals exceed your wildest reasonable expectations, but horrible money management will get you into shit in a hurry. I've seen way too many cases of people who seem to earn more than enough get into serious trouble when either that cash flow stops, or their way of living simply gets too large.

Tim I think you are very much on the right track putting money into some accounts you can't touch easily. And everyone's made good points about credit cards, tracking expenses, all fundamental stuff.

I think the one thing I'll add that's really helped me is to figure out where in your lifestyle you are bleeding money and not really seeing any tangible benefit. You shouldn't hoard money to the point you can't enjoy yourself, what's the point? And you generally don't regret blowing a ton of money on one thing if it's something you really fucking enjoy. So spend it on that awesome trip or beautiful guitar and treat yourself well once in a while.

But that $2 cup of coffee in the morning instead of making your own brew? Eating out all the time? Burning gas on that extra trip to the store? Gadgets you never use? It all adds up in a hurry.

[Mark]

(04-17-2012 05:36 PM)Jani Wrote:  Off course, money is a mindset.
But instead of focusing on saving, focus on earning more. They are both techniques, but with very different outcomes.

Why can't he do both?

[Traindom]

(04-15-2012 01:33 PM)Jani Wrote:  Just earn more money!! Saving that causes to degrade your lifestyle isn't smart, it's plain old stupid.
Saving is overrated. It's important, but overrated.
You'll never gonna save enough for financial security. Cash flow does that.

I've met a lot of people who took saving to the umpteenth level. It's things like splitting a single meal for two, hitching infinity rides with people, and spending no money at all in general that really are bothersome. I know everybody isn't well off but it can get pretty ridiculous. I've been with people like this almost all my life. And I can tell you, they're a drain in your life. Yes, cutting corners could be considered smart, but it really degrades your lifestyle.

I'm not very experienced with managing money, but I've had some experience with people who have tried saving and have stayed there for as long as they can. I can attest to the lifestyle thing Jani mentions. Saving is commendable, but if taken to the extreme, you'll repel a lot of good people.

I know it sounds like I'm making saving sound like most evil thing you can do, but it's just that I've seen too many people cut too many corners so that they can live a debt-free, but quite mediocre, life.

I think splurging every once in a while like mentioned above is a great idea. Especially if it's on something you enjoy.

Sorry I didn't really answer your question. Others can do much better.

[Jani]

Traindom gets what I tried to say.
Off course saving is important, but your PRIMARY focus should be earning more money.

[IdEngager]

Earning more money is such a trap though sometimes. The reason being that you are rarely pocketing quite as much you think you are.

Let's say you work a regular office job 9 to 5. Your boss is feeling good and gives you a 5% raise (let's say on something that pays you 50-60K a year). Over a year you think you have another 2 or 3 G's, but split that out per paycheck and minus taxes and deductions and that's like $20-30 more per week. That's barely enough to change anything. Even if someone drops you an extra 5 G's, that gets sliced nearly in half right away.

Or say you're a freelancer, or just taking side gigs. The money in these are usually better straight up than what you'd get in a more stable gig, but have you considered your expenses for equipment, transportation (if you had to drive somewhere for it), time spent (versus what else you could have been doing), etc...?

Point is, you're rarely granted enough money at any one time to radically change your lifestyle. It's never any one purchase that gets people in trouble, it's making repeated cumulative decisions that gets people in trouble. No one looks at their bank account and sees 20 Gs and decides to buy something that costs 50 Gs lump sum, but they can sure spend on a lot of separate things that add up to that fast.

Take care of your basics, spend money on things you'll enjoy and get value off of, and stop spending it on things that add little marginal value! I know people who've made pro athlete money (literally) and are still dead broke!

[Alvar]

There seems to be some confusion: making sound financial decisions is not the same as money pinching. Checking on your consumer behaviour is positive a habit, focusing in earning more is a mindset; they're at different levels. Positing them as alternatives it's just a false dilemma.
People who have a hard time managing their money well when there isn't much discretionary income, often have trouble balancing their finances when income goes up, their "lifestyle" expenses simply slip up without getting much satisfaction in return. They just get into the habit, and since they can afford it they won't evaluate how much they are getting for it.