Advice from a Personal Finance Nerd

Advice from a Personal Finance Nerd

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That’s right, I said it.  My husband and I are big-time personal finance nerds.  We TiVo Suze Orman and listen to Clark Howard podcasts.  I get excited like a kid on Christmas morning when my quarterly statements come in the mail.  I realize, however, that not everyone is like us.  Most people’s eyes glaze over when they hear about 529s, ETFs, and FICO scores.  But just about everyone is looking for ways to save money and get their financial house in order, so I thought I’d share are some of the most important things I’ve learned – hopefully these tips will work for you too!

Know where it goes – When I got my first job out of college and I was barely scraping by financially, I had a little daily planner where I kept track of every. single. dollar I spent. Whether it was a haircut or a soda from the machine at work, I wrote it down. I knew exactly where my money was going, and just the act of writing it down made me much more careful about my purchases. I’ve gotten a bit more sophisticated over time and now use mint.com to do all those calculations for me. It’s really hard to get a handle on your spending if you don’t know where the money is going, so this is a great place to start any financial makeover!

Re-negotiate your monthly bills – When most of us try to reign in our spending, we typically think about our variable expenses. It’s easy to overlook our monthly bills, which we think of as relatively fixed. But there is actually plenty we can do to lower those bills, and with a one-time effort you’ll continue to reap the benefits month after month. If you call your cable company and tell them you’re thinking about switching to one of their competitors, all of a sudden they’ll discover a special deal that you’re eligible for (and play hardball if they just try to offer you a month of free Showtime!) Depending on what you actually watch, you might even be able to drop cable completely and cobble together some combination of Netflix, Hulu Plus, etc. that will meet your TV “needs.” For your cell phone, consider going no-contract. I switched to Virgin Mobile and basically spend half of what I used to. Put everything on the table – go through all your monthly bills and figure out what can be cut. (And check out this great step-by-step guide on negotiating down your monthly bills).

Pay yourself firstAs I’ve written about before, traditional budgeting just doesn’t work that well. We’re depending on our own self-control and willpower not to spend more than we should. It’s easy to end up with nothing leftover at the end of the month to put towards savings. The best way to ensure that you actually save is to have the money come out automatically before you can even get your hands on it. No self-control necessary!   Set up an automatic transfer to move over a set amount as soon as you get paid.   The key is to establish a savings account that is completely separate from your usual checking/savings (I use Capital One 360, formerly ING Direct). I can access the money in case of an emergency, but it’s enough of a pain to do so that usually I never touch it (I don’t have a debit card for the account). If money is tight and you feel like you’re living from paycheck to paycheck, just start small; even $20/month is better than nothing! When you see the balance grow, it can motivate you to keep going.

Stop ignoring the big stuff – We all love a good deal. If I get a $30 shirt for $7, I feel compelled to tell everyone I know. The savings is immediate and gratifying. But while we’re focusing our energy on these relatively small savings, a lot of us totally ignore the financial decisions that will have a much more substantial impact. Almost half of those with a mortgage don’t comparison shop. Think about how crazy that is! According to the Consumer Protection Bureau, “Getting an interest rate of 4.0% instead of 4.5% [on a 30-year fixed rate conventional loan] translates into approximately $60 savings per month.” Over 30 years, that’s a difference of $21,600. THAT’S OVER $20,000! I get it, comparing mortgages is super boring and sometimes confusing. But when $20 grand is on the table, it’s worth every boring and confusing second to do our homework and find the best possible mortgage offer.

Do everything humanly possible to improve your credit score – Having a crappy credit score will give you a higher interest rate when you go to buy a major purchase like a car or house, as well as higher car and home insurance rates. Just like the mortgage example above, higher rates translate to anywhere from a few hundred to several thousand dollars over time. Know what goes into determining your credit score, and check your score regularly so you know where you stand. Ignorance is NOT bliss – if you don’t know your credit score, it’s really hard to improve it. A big component of your score is how much of your available credit you utilize, so make it a goal to pay off your credit card in full every month.

Feeling inspired?  Designate a specific day to get your financial life in order.  Not that I’m encouraging dishonesty – cough cough – but maybe take a “sick” day specifically to tackle some of the items on this list.  I used to dread dealing with all this financial stuff, but I eventually realized that a) it’s not actually all that hard, and b) once you do it, it feels like a huge weight lifted off your shoulders.  In one day you could EASILY setup an online savings account with automatic transfers, go through your bills and make some calls to renegotiate your rates, get your credit report, and set up a system to track your spending.  Maybe enlist a friend– you can hold each other accountable, work more efficiently, and maybe even have some fun in the process.

Interested in even more financial tips?  Stay tuned for Part 2 of this topic next week.  Sign up to follow my blog so you never miss a post!

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