Leo over at the Zen Habits blog posted 20 money hacks today, ways to help keep your finances in order. While I don’t agree with every tip in the post, I think this is a fantastic resource and if you follow Leo’s advice, you’ll see a major improvement in your finances. Some of his tips are the very actions I took to get myself out of $12,000 worth of credit card debt and get myself started on the path to financial independence.
Here are some things I would add:
- Get online banking and use it! Check your balances at least once a week to make sure things are on track. Also, using online banking will allow you to…
- Pay your bills automatically online. Many banks offer free online bill pay to their customers. If you set this up to happen automatically, you’ll never be late with a bill again. And you’ll never have to worry about not having the money, so long as you…
- Use multiple bank accounts to earmark funds. I keep one checking account for my living expenses (food and entertainment, mostly) and another one for my rent and bills and so forth. As soon as I get paid, I set aside enough money for living expenses for the pay period in one account, enough for bills (half my monthly total for bills since I get paid twice a month) in the other account, and all the rest goes to savings. This is the equivalent of Leo’s envelopes idea, but for people who…
- Don’t use cash. Okay, I disagree with Leo on this one. I do almost all my spending via debit card. By keeping tabs on my account online, I can keep track of whether I’m overspending or underspending(!), and I very rarely have to go to the trouble of using an ATM. I find it easier to waste money when I have cash in hand than when it’s on a card deducting from my bank balance. It’s more painful for it to reduce the bank balance because then you’ll notice your spending when you…
- Track your net worth. I agree with Leo that keeping a Google Docs spreadsheet for your finances makes a lot of sense — but I think it’s more valuable to use this for long-term tracking of your progress than short-term tracking of your spending. Total up all your money (and other financial assets if you have them), then total up all your debt. Subtract your debt from your assets, and you have your net worth. You want to watch the trend in this over time — month over month, are you getting richer or poorer? I check this every payday. This lets you measure your progress toward your financial goals, which is much more motivating IMO than seeing your spending all the time.
On the whole, as Leo says, you should do what works for you. I’ve written this just to present another possibility — this is what works for me.
In regards to #4, I think whether using cash, credit, or debit is best depends a lot on your own personal habits. I’ve seen studies that people tend to spend more when using plastic. But it also is easier to manage and helps you budget by keeping track of charges so you’ll have an excellent record of what you spend on different things. If you have a credit card that offers some kind of reward AND you have the self-discipline to pay it off each month, than credit is a good way to go. Cash is nice if you’re bad at budgeting because it really limits you to what you have in hand.