Creative Life Series - Money Management
By Steve GillmanThere are many books out there that explain THE WAY to manage your money. The truth is we all have different habits, goals, and skills, so there is no one way to manage money. Some less common ideas are suggested below, in case you find one or two useful. I also want to announce my new website:
It is about the purpose of money, the philosophical issues, and all the deeper questions, although it also covers making it, saving it, investing it and such. Now, let’s look at some creative ways to manage your money.
I know two people who bought a home and moved in together. They planned to spit all the household costs. As you may know, this can be a source of tension despite intentions. For example, a bill comes in and one person likes to pay quickly while the other usually waits until it is almost late (or until it is late). Or one doesn’t have the money set aside and so the bill must be covered by one and a debt created. It gets complicated.
Their solution? They added up all the regular expenses they expected for a year. This included mortgage payment, gas and electric bills, garbage collection, and even the newspaper. They then divided that by 52, and each put that much money in a jar in the cupboard. They put an extra $100 each in it to start their “household fund.”
Whenever a bill came, either one of the two could write a check for it and get reimbursed from the jar. And no one had to save for the monthly mortgage payment or unexpectedly high heating bill. They each simply put $95 cash in the jar each week (small home) when they received their paychecks. The jar covered all the bills as they came in.
Other Money Management Ideas
Some people try to keep their pockets empty in order to spend less. Another approach is to budget a certain amount for impulse purchases and just put that much in your wallet at the start of each week. When it runs out you have to wait until the refill day.
For those that really have a hard time budgeting, and aren’t willing to learn, here’s a money management trick that can help. When you have extra money (overtime that week or whatever) use it to stock up on absolute essentials. These are things like toilet paper, canned foods, and shampoo. In this way, when times are tougher you’ll at least have some of your needs covered already, and doing this also prevents you from spending as much on unecessary things.
If you ever have had an unexpected car repair or other large unplanned expense, and were short on the money to pay for it, here’s a solution. First, stop thinking of these things as surprises. Heaters break, televisions die, and you get sick. The only really unexpected part is the timing. You know these things will happen, and you can probably look back and see how much these “surprises” cost over the last five years. Add 50% to that and divide by 260.
That tells you how much you need to put into your emergency fund every week to be ready for the unexpected. Make it a separate bank account and tap into it only for things that were not foreseeable (as far as timing), and are over $200. If there seems to be more than you need after a while you can transfer the excess into an investment or retirement account annually.
There is another way to approach these things that has more to do with budgeting for truly important goals. We often put off our dreams and don’t save for them. Suppose you want to go trekking in Nepal someday, and you have figured it will cost about $4,200 for two weeks (if you haven’t even estimated the cost it is more of a wish than a goal).
Start an account for this goal and pick a reasonable amount to add to it each week. If you deposit $40 into it weekly you’ll have the money needed in 105 weeks - just about two years. Now, no matter what happens, put that $40 in there every week, even if it means paying bills late. There are two important ideas here.
The first is that necessities eat away at dreams if we let them, so don’t.
The second is that we generally manage to survive even if we have less than we think we need. if you were making $40 less each week you would still somehow be alive in two years, right? So this get’s back to the first idea: don’t let seeming necessities cancel your goals.
I have one last money management idea that is very common as an idea but not used enough. It is to track every penny you spend for two months. You’ll be surprised at what you learn, and motivated to change your habits towards using money for what really matters to you.
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Tags: creative life, money, money management