Last week we looked at money management areas requiring introspection and habit modification to save money. Making the shift in mindset is not achieved overnight and takes time. Taking one step at a time it can be done, JUST DONT GIVE UP.
This week, I’ll share 3 areas where timely action and prudence can reign in big ticket items from becoming runaway horses with your money. Our focus remains on habit modification and immediately actionable steps.
Depending on how you manage your credit card spending, this wonderful piece of plastic can be a boon or bane to your money management and budget. On the one hand, it helps you to manage your cash flows and there is a record of your payments. Besides, many credit card companies offer reward points which can be redeemed against paying your annual fees or buying merchandise.
On the other hand, unless you have great willpower and self restraint, you may end up splurging on non-essentials which you need to pay for at the end of the month. In addition, if you only pay the minimum amount each month, the compounded interest becomes a hefty dent on your wallet.
You don’t have to cut your credit cards in half the way Dame Maggie Thatcher did but you can decide upon your purchases using this wonderful budget tool and make sure that you pay in full at the end of each credit period.
If you have credit cards and your credit is in good standing, call your credit card company, and ask for your interest rate to be lowered. Unfortunately, most people do not even realize this is an option so they never make the call. Just tell the representative that you want a better rate on your credit card and they will take care of your request. In fact, many credit card companies actually raise your credit limit and reduce your interest rate based on your credit standing without your even asking. This has happened to me twice so I know it happens!
Whenever you feel the urge to make an impulse spend on your credit card, step back and ask yourself if you would make that purchase in cash. You might find yourself tucking the card back safely into your wallet.
Review your home loan payment schedule
This tip is based on my actual experience and one that I would suggest to anyone who might be facing the specter of a pink slip. When I took out my home loan 15 years ago, it was at a fixed rate of interest for 15 years. A year into my home loan, there were two major events that happened outside of my sphere of control. The first was a strong and growing feeling in the company where I worked, that the project for which I had been hired might be shelved on commercial grounds and the company would downsize the project team.
The second was the massive decline in home loan interest rates. I knew that if the project was shelved, I’d be directly affected and decided to rearrange my finances by reducing the EMI (Equated Monthly Installments) in case the worst did happen. I contacted my bank and asked to make a prepayment of part of the principal and explore the possibility of restructuring my loan.
The bank advised me that as I was going to pay a prepayment penalty, I should also convert the loan to a floating interest rate as the interest rates were declining and this would get covered at no additional cost. With proper planning, the prepayment was set off against the principal amount and both the EMI and the interest rate got reduced significantly resulting in massive monthly savings for me. As feared, the project was closed a year later and the entire team save for 3 people who got absorbed in other projects lost their jobs.
Times were hard and it took time to find another job but in the meantime, the savings I had created and had placed in a separate account were used to pay my EMIs for a year to protect my home. With the restructuring of the loan I paid off the loan within 5 years.
I’ve written in more detail about this life changing event in my blog post Can Moving Cheese Positively Improve Career Life Balance
I suggest keeping an eye on market events such as interest rates and also considering using windfall gains to set off long term debts where possible. Even better, if you are in a position to save towards servicing part of the investment of your home, make the home loan company aware of this fact and negotiate for a better rate of interest as well as other conditions. Taking out home loan insurance to cover EMIs is also an option depending upon your situation.
Pay Your Bills on Time
This one is a real no-brainer and if I didn’t articulate it well enough when I touched on credit cards, then here is a full tip on it!
Many people tend to make late payments either because they are too lazy or they put it aside and completely forget about it. Just remember, that for every late payment, you are charged a late fee which depending upon how late your payment is may be charged on a sliding scale which is definitely not in your favor!
If you start to total up the penalty fees for various services whether they are utility bills, internet services, mobile services or other post paid services, you would notice a hefty dent on your bank account balance on an annual basis. This amount could be better utilized earning interest in your bank account or paying towards other expenditures.
It happened with me once, JUST ONCE and I learnt my lesson when I forgot to pay my data card bill and found myself levied with a fine and a suspension of service for 2 days which was certainly not pleasant. The fact that Bruno, my dachshund friend of 17 years had passed away and my mind was preoccupied with a sudden seepage in the master bathroom was no reason to have missed this payment.
My monthly to do list now has an item to pay ALL my bills by a particular date which I follow religiously. To make it better, I do it online using my credit card which helps me to consolidate my final payments in one place, earn reward points and get even more credit time. Consider setting up direct debits for key expense service provider accounts. The other alternative I suggest is to pay the bill as soon as you receive it and get the monkey off your back.
I tap into the energy of Money and if you haven’t had a chance to listen to my teleclass on Unleashing the Energy of Money, I invite you to listen to the replay before January 31, 2016 after which it goes back into the vaults. Click here to access the replay or on the image below.
Update 19th April 2016: You are invited to attend the April 2016 teleclass on 3 important actions you need to manage money as part of The Karmic Ally Coaching Experience celebrations of financial literacy month on April 24th,2016. A replay will be made available but you have to sign up. You can click here or on the image to be taken to the sign up page.
To repeat from last week’s post, saving money without compromising your lifestyle requires a bit of introspection, habit modification and creating a mindset shift towards money. A truly happy and content person realises that money is a means to an end and not the end itself.
Your turn! Have any of the 3 areas ever given you grief? How did you find your money management solution? I’d love to read about it in the comments box below.
Three Credit Cards by Petr Kratochvil
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