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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 DON’T 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.
Credit Cards
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. Many credit card companies offer reward points redeemable 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. Only paying the minimum amount each month means 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. Instead, decide upon your purchases using this wonderful budget tool. 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.
Tell the representative 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 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. That meant 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. I 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. This would get covered at no additional cost.
With proper planning, the prepayment was set off against the principal amount. 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. 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. 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. 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. Depending upon how late your payment is, you 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 postpaid services, you will 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. 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. Alternatively, pay the bill as soon as you receive it and get the monkey off your back.
I tap into the energy of Money in my Money Success Secret: The Alchemy of Mindset and Management.
Update
You’re invited to listen to the teleclass on 3 important actions you need to manage money for free. This was part of The Karmic Ally Coaching Experience celebrations of financial literacy month on April 24th,2016.
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 realizes 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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Thank you for this information. One thing my husband and I will do, when we buy our new home in 2016 is to pay our mortgage bi-weekly, this allows us to put more money down on the principal and pay it off faster than the 30 years we may take the loan. We take that long because that will be our lowest payment, with him being the sole breadwinner while my business is building, it makes sense; then we pre-pay it down. We do not get prepayment penalties with our bank. My husband always makes sure our bills were paid, we got more responsible with our money when we got married than when we were single.
That is a brilliant plan, Tamara and it is realistic too. Bravo! It is a blessing that your bank does not charge a prepayment penalty. I think banks worldwide learned their lesson in 2008 when there were lots of foreclosures because people could not pay per their circumstances. Making sure that your bills are paid on time also helps with your credit rating and you may just find that the interest rates on your loans and credit cards are reduced to acknowledge this. My bank charges me a lower penalty rate on my credit card and even raises my limits from time to time. So I make sure that I am on top of my game. Thanks for sharing your tips, Tamara.
My husband and I are working at tackling our debt, and we’re constantly working at paying our bills on time! It’s super important.
That is true, Ariel. More power to your husband and your intentions and goal of tackling your debt. Success is yours because you are working on it.
Thank you for sharing this important information. These are areas my hubby and I trying to work on, because late payments mean late fees, and poor money management often results in overdraft fees. NOT fun!
I’m happy the information is useful for you Karen. Good money management means having funds for things and services that we need or perhaps even indulge in a much desired want. The opportunity cost of spending money which could have been spent elsewhere on fees and penalties is higher than just the monetary amount.
Great insight here, Vatsala. The credit card can be such a valuable and helpful tool, but can really present challenges if it’s treated like free money.
My husband and I also negotiated our mortgage interest rate – economy was in a bad state, people in our town were abandoning property. We could show strong history of paying down the principal, and sent a spreadsheet with our plan to pay the mortgage off early. The bank worked with us and reduced the rate. Lesson learned for us: if you don’t ask, you won’t know. Glad we asked!!
Thank you for sharing your experience Deb and validating the fact that if we talk to the bank or financial lending institution, they will help us to find a viable solution. Banks don’t like to foreclose loans because they still need to then dispose off the home to recover their principle loan amount and are more than happy to avoid the situation.
I am delighted to say that I have all the three areas completely under control. My credit cards are all paid in full by the due date and I’ve learned to play the “credit card” system and make purchase in a way (when possible) that I actually have an extra month of the bank’s credit. I also just recently refinanced both my home and my mother’s condo (which I own) so that I am paying less and on my home, I took equity out to invest at a much higher rate than my mortgage interest rate.
In the past, when times were leaner, I was really good at playing the credit card transfer game too. When one credit card would offer a very low interest rate on balance transfers, I would take advantage and move balances on any higher rate cards. Money is one of the big topics in my life and through a combination of natural understanding of the laws of money and education, I feel quite confident in the way I handle finances. Other than of course being in a place where it would be lovely to manifest more. 😉 Thanks for the very helpful read Vatsala!
Bravo Beverley! I have never tried the credit card tip though I do remember in my student days as a Chartered Accountant Trainee, I had colleagues who used this method with their credit cards and then transferred their debts to their home loans when they decided to purchase a home and settled everything through 1 debt. They were diligent with the home loan repayment though.
I absolutely agree with all these points, Vatsala. Managing money and making them work for you is such an important aspect of your life journey.
There are so many different places where money can be saved instead of spent. Little steps with a big effect for the future.
I’m glad you are raising more awareness with this series of blog posts.
Thank you Delia. I’m trying to raise awareness this month about managing the money that we do have to achieve our goals and then look outward for other means of resources as the first option.
In my household, Joe looks after all the finances and let’s me know exactly where we are on a regular basis. We also live within our means which doesn’t get us into trouble.
The one takeaway is that we don’t fall into that Jan/Feb dreaded credit card bill from Christmas depression. We pay for gifts either by cash or Debit card. Makes for a much more relaxed new year.
I love the strategy that you and Joe have adopted to avoid the Jan/Feb credit card bill and start the year with a peaceful mind, Gisele. I usually plan a budget for the festive season and make sure that I track it so that there aren’t any unpleasant surprises on January 5th, which is when my credit card bill arrives. A few personalized solutions can give us so much peace of mind. Thanks for sharing your tips for my readers and me.
We got bitten by the credit card monster when we were young and learned our lesson so while we use our cards for most purchases, we pay the monthly bill in full, not just an interest payment.I wish you’d been around to give us advice back then Vatsala – your tips are great.
Thank you for the compliment Tamuria, it warms my heart to know that I am on track with my mission to make a difference, even if late in life. 🙂 Credit cards can be a bane if not managed properly and a wonderful budgeting tool too. I make it a point to settle all my bills including those on the credit card by a fixed monthly date and to give me motivation, include it on my To Do List. Nothing like striking tasks off with a flourish. 🙂
My hubby pays a bill the day it arrives so it is handled. I collect a few & then pay them. In 16 years of marriage we have never argued about money and have different viewpoints. What we agree on means we pay credit cards in full, never an interest charge & we live within our means.
Many people don’t learn how to manage money and so I think its great that you are addressing this.
The rituals that you and your husband follow, Roslyn, ensure financial peace in the house and make sure that you know exactly where you stand in relation to your finances. Money management is an easy skill and yes, one of the reasons I’m addressing it this month is to help people take control of their finances in a timely manner without worries.