Automate Your Finances

Life can be complicated. Even with the best of intentions, we become busy and sometimes things slip. When it comes to your finances, letting things slip can be costly.

To prevent late fees, interest, etc. automate as much as you can. Many times you can use a free online bill pay system from your bank. Many companies allow you to register a credit card to charge the balance to (just make sure you pay off that credit card every month). Variable expenses, like the electric bill, can be automated by figuring out what the average over the last year is, round it up to the nearest $5 and then automate paying that (wait until the bill is less than the average to start paying the average).

You can also automate your savings. Many banks have free, regular transfers. Set up an account for a rainy day and have it automatically pull money from your checking account each month (right after payday). Set one up for college funds, new car, etc. Whatever you know you are going to have to save up for.

Make life simpler and automate everything you can. What else have you found to automate?

Once again, time for a Credit Check

If you checked your credit history on AnnualCreditReport.com in January and May with just one of the three credit reporting agencies each time, it's time to get the last free report this year. Remember why it's important to check your credit history and what to look for in your credit report.

Also, if you've created an account with CreditKarma.com, make sure you visit every once in a while (at the most monthly) to update your score and see how your actions are affecting your score.

Save your way to poverty

"Look how much money I saved!". People love a good deal, but is it really a good deal if you don't need it, or weren't going to buy it anyway? Many times it's really not such a great deal.

Just because something is bulk or store/generic brand doesn't necessarily mean it's a better deal. We've been conditioned to think that if you buy more at a time, or an off-name brand that you will get more for less money, and retailers take advantage of this by, every once in a while, making it not such a great deal.

If you actually do get more for less money when buying in bulk, will it cost you less? Will it be lost, expire or go bad before you use all of the bulk? Are you going to use it more often because now you have plenty? Cell phone minutes are a great example. For just $10 more a month you get a trillion minutes. But can you get by with the lesser plan and save $100/year? Or texting, I text occassionally. Some months I spend enough to actually add texting to my plan, but overall, I don't text enough to make it cost less to add it to my plan.

You also have to consider the time-value of money. A dollar today is worth more than a dollar next year, and for two reasons. We continually keep improving technology, making thing faster, better and cheaper. This means that even though something is on sale now, it may be less expensive in the future. The other reason is that, due to inflation, the money will be worth less in the future. That means the money in your wallet now is very valuable. If you buy enough of something to last you 20 years, not only will it probably be cheaper in 20 years, but you no longer have that valuable today money, but instead have devalued future item.

Another trick retailers pull is to inflate the price so they can advertise huge discounts. This is very apparent in jewelry sales. Walk into just about any jewelry store without the intention to buy, and start looking at what you like. Ask to try it on. Watch as they start dropping the price. The more you seem to want to buy it, and the less you seem to be able to buy it, the more they seem to discount. Look at them pull out a calculator and "figure out the best price they can get you." It was marked up high in the first place so they can either make a huge profit on those who will buy at "retail" and be able to entice those who weren't going to buy with deals too good to pass up. This kind of thing is also prevelant in auto dealerships.

In the end, the bottom line is: are you actually going to spend less than you would have otherwise?

Cash into Trash

Robert Kiyosaki (author of the best seller Rich Dad, Poor Dad) wrote in his book Rich Dad's Guide To Investing that most people "turn cash into trash." This phrase really stuck with me. The money you spent in the last six months, what do you have to show for it now? Now don't get me wrong, it's good to spend some money making memories with family and friends. I think you should spend money on good foods that improve your health. There are valuable things that you should spend money on. But was any of the money you spent in the last six months spent on anything that has that much value, or more, now? Or was it spent on things that depreciate, go to the trash heap, go down the toilet or sit in your veins and around your waist.

Start spending money on things that will retain their value. Why sell your life for a paycheck that ends up in the dump?

Necessities

I've noticed that I've witnessed an amazing phenomenon many times in my life. Here is the story:

1. You find yourself having less money available (pay cut, job change, job loss, investment loss, increase in debt, etc.).
2. You make cuts in your spending to where you can just get by.
3. Something else happens that further limits your cash flow
4. You make cuts in your spending to where you can just get by.

Sound familiar? I've gone through it. I've seen a lot of friends go through it. Someone gets a 5% pay cut or their car dies so they finance another car, which drops their pay 2%. The words change but the tune is the same.

The really funny part is this, you were able to make small cuts to get back within your financial comfort zone each time. Somehow we each figure out a way to make ends meet.

Now the magical question: What if we put an artificial pressure on ourselves to do the same thing before there was an actual mini-crisis? What if we took 2% of our pay and, as Robert Kiyosaki says, paid ourselves first. Put it into savings or investment and do not touch it.

Imagine finding a way, somehow, to put aside an extra 1%, 2% or even 5% or 10%. Then figure out a way to live on what is left. Maybe start small, say 1%, and then increase it 1% every four months, six months or every year. You don't think that small amount will make much of a difference? Read The Slight Edge and see if you can say that it won't make much of a difference.

Time to Check Your Credit History Again

If you checked your credit history on AnnualCreditReport.com in January with just one of the three credit reporting agencies, it's time to pick another one and get another free report. Remember why it's important to check your credit history and what to look for in your credit report. (See the January post on Credit Reports)

Another credit resource I've found very helpful is CreditKarma.com. They will give you your credit score free (in exchange for their site being filled with offers) and even give you a report card that can help you focus on what will help improve your score.

Here are some things I learned about my credit score:

* In the first two months (November and December 2009) that I used the service, my credit score went from 757 to 771.
* While my "Open Credit Card Utilization" is rated an A, it is more like an A- as I am one percentage point from being a B
* I thought my one late payment in the last decade would haunt me for seven years, it turns out I'm still an A in On-Time Payments (although an A-)
* My two C's are Total Accounts (not enough accounts) and Average Age of Open Credit Lines

It's funny because it's a catch-22 for my 2 C's. I'd need to open twice as many accounts as I have to get an A in Total Accounts, but then my Average Age of Open Credit Lines would go down to a D. I guess my strategy here would be to slowly acquire accounts (but not use them) so both scores go up slowly. At around 20 Total Accounts, every time I open a new account, it will set back my Average Age of Open Credit Lines by one month. Currently, in about 6 months the Average Age of Open Credit Lines should reach a B-. Then another two years to reach A-. However, to reach a B- on Total Accounts, I need another ten accounts and another twenty to reach an A-. Adding ten accounts would set me back about six months. So probably the best strategy is wait six months to get a B- in Average Age of Open Credit Lines and then over the next six months add about 10 new lines of credit. Both of my C's are MEDIUM weighted in credit score, so they are not really that big a deal.

Looking at the Total Debt distribution is also interesting. The average score for my total debt is 688. It seems there are two extremes. Either have less than $5,000 debt or have more than $150,000 debt. Both those debt ranges score around 700. Between $5,000 and $150,000 of debt, you start going down in credit rating. The people with the lowest scores have between $5,000 and $50,000 of debt.

Great Reads

I've often heard that "the only difference between the you of now and the you ten years from now is the books you read and the people you associate with." So make sure you spend time with people who are where you want to be and actively try to acquire their habits, thinking and perspective in the areas you admire in their life, and read great books that help you think differently. Here are some books I highly recommend out of my recent reading:

Twelve Pillars

Great story that teaches twelve principles of success.

Peaks and Valleys

Another story that teaches principles that help you stay on your peaks longer and get out of your valleys faster.

The Slight Edge

Incredible book that shows how to make small changes on a consistent basis to make a huge difference in your life.

How To Have Confidence and Power in Dealing With People

Great book on how to improve your skills with people.

I Dare You

Live a life of adventure.