Money tips from a former squanderer.
As a former money squanderer turned super saver, I'd like to pay it forward some of the behaviors that changed my life financially. Some of this advice is common sense, and some not so much. But, sometimes you can hear the same message a million times before it clicks.
Create a Buffer
Many banks offer to cover your charges in exchange for a $35 fee per item. Other banks allow you to apply for a line of credit that you can use to cover transactions in exchange for interest fees. In either case, you end up paying your bank hundreds to thousands of dollars every year for the opportunity to live paycheck to paycheck. Sounds terrible when you state it that way huh? A checking account buffer is a savings cushion inside your checking account. The benefit of maintaining a buffer is having a completely free security net against over-drafting.
There's a quick trick to setting aside your buffer money. If you're a salary based employee, there are two months every year where you get three paychecks rather than two. Scroll through your calendar until you find the months with three pay periods and set a reminder to set those extra checks. You spend ten months of the year living on two paychecks so the two extra paychecks can be set aside in your checking account rather than spent. If you're not paid salary then the "extra checks" method may not work for you. Instead, you can create a buffer by setting aside your income tax refund.
Try making your checking account buffer at least equal to your most expensive monthly bill and at most a full month's income. Try not to carry more than one month's pay in your checking account because at that point the excess funds could be earning more for you in a money market account, in long-term CD's or the market.
As transactions come out of your checking account, future paychecks automatically replenish your buffer, and you always end up carrying that minimum amount in your account.
Use a Prepaid Debit Card for Fun Money
When I was cleaning up my spending habits, I stopped carrying my debit card in my wallet altogether. Instead, I allocated a specific amount of money each month for restaurants, movies, shopping, ya know, the fun stuff and I had it automatically deposited to a free prepaid debit card. American Express, WalMart, and Paypal all have free prepaid debit cards. This can be a permanent solution or just a strategy you try as you learn to control your spending.
Direct Deposit Your Savings
Automate your savings by setting a portion of your paycheck to be deposited into a separate bank account automatically. After a couple of pay periods, you'll adjust mentally to the lower paycheck, and you'll be saving without thinking about it.
Stay Alert & Stay Away
Choose a separate bank than your checking account for your long-term savings. The benefit of some separation is that it will help you control your impulsiveness and budget. The harder it is to get to your hard-earned savings for spending sprees the more money you'll have available for emergencies, trips, career changes, and retirement.
If you sit and watch your money grow, you may be tempted to access it. Instead, use your bank's transaction notifications to keep updated on your gains without watching it obsessively. If you set your notification transaction level to $0.00-$1.00, you'll be alerted to most if not all activity on your account as it happens.
Change How You Perceive Your Bank Balance
Your checking account balance isn't "how much you have left to spend." It is not a pot of money that requires depleting. If you don't use the money in your checking account, you won't lose it. Financial freedom feels good, and you don't need a million dollars to experience it. Escaping the cycle of paycheck to paycheck living is financial freedom, and the reduced stress and worry are worth it.
So what do you think? Are any of these strategies doable? Are you already managing your money similarly? Let's discuss below.