10 Tips to Manage Your Money Better

Written by: Danielle Johnson
Joboja Staff Writer

1. GET DIRECT DEPOSIT

Automatic deposit of your paycheck can help you avoid the desire to spend your money as soon as you receive it. We all are familiar with that “burning hole” feeling due to having a significant amount of money readily accessible. All of a sudden we “need” a new pair of shoes, new clothes, jewelry or other baubles. This pursuit of items that we “need” can easily lead to financial disrepair. Most of us get into financial trouble because of our wants and not our needs.

2. PAY YOURSELF FIRST

It is imperative that we make it a priority to save at least 10% of our annual gross income. According to a CBS news article dated 2/7/06, Americans actually have a negative savings rate of .5%. The savings rate has only been negative for a full year twice before, in 1932 and 1933, when Americans were struggling with job layoffs during the Great Depression.


3. GET A COPY OF YOUR CREDIT REPORT & CORRECT ERRORS

By some estimates, over 50% of credit reports contain errors. These errors can be very costly in terms of higher interest rates and fees that result from lower credit scores, if not corrected. Unfortunately, the only way most of us find out about credit reporting errors is after we apply for some type of credit. All consumers can now obtain free copies of their credit reports once per year from each of the three major bureaus. Please note that there are a lot of fakes offering “free” reports in exchange for signing up for some type of credit monitoring. Please visit www.annualcreditreport.com which is the official site to obtain your reports.

4. READ ABOUT SELF-MADE MILLIONAIRES

Read as much as you can on individuals that are self-made millionaires. You should make it a point to make a file for yourself of self-made millionaires to serve as a source of motivation.

5. AVOID INSTANT GRATIFICATION

As a society, we spend, spend and spend. Take a minute and think about some of things that you have that you don’t need. At what point did you purchase those items? If we are honest with ourselves, most of us would agree that the majority of those items were impulse purchases. We saw it, we wanted it and without much thought, we bought it. However, in order to build wealth and improve our cash flow, we absolutely must conquer the habit of wanting everything in life immediately.

6. BUY A PRIMARY RESIDENCE

The debate continues on whether it makes more sense to buy rather than to rent. Over the past several months, the media has bombarded the public with constant reporting on the “housing slump” and the “housing slowdown” in different markets throughout the country. Owning your own home is, in my opinion, the first step towards wealth creation. Even if you purchase a home and it appreciates only 5% per year, that equates to a $5,000 increase in net worth per year on a $100,000 home. If you think about it, the average person is not saving $5,000 per year - some folks are not even saving $500 per year. Owning your own home is the equivalent of a forced savings account. Renting, on the other hand, does nothing to build wealth.

7. DISCUSS FINANCES WITH YOUR SIGNIFICANT OTHER EARLY

Talk with your significant other about finances early in the relationship. Money problems are the #1 cause for divorce in the USA. You can never begin too early to start discussing finances in your relationships with your life partner. We have been trained to shy away from the topic of money, as if it were going to take care of itself. Women, in particular, tend to fall into the role of letting the man handle all of the finances and remaining clueless throughout the relationship. Give yourself and your partner the opportunity to have the best financial relationship possible and bring these topics into the open early in the relationship.

8. LOCATE & STOP SPENDING LEAKS

If you have ever uttered the following phrases, “money goes like water” or “I don't know where my paycheck went,” chances are you suffer from at least one spending leak. Spending leaks are the constant draining of funds on seemingly insignificant expenses. One example that readily comes to mind is buying lunch every day at work. Even if a person only spends $5/day for five days a week, that totals $100 per month. If a person cuts back to even half that amount, that represents a savings of $50/month. In order to locate your spending leaks, track every single expense for the next 30 days and tally at the end of the month. Also at the end of the month, notate next to each expenditure whether the money spent was a want or need. I can guarantee that you will locate at least $100 that you can recover if you adjust your spending habits.

9. DEVELOP A BUDGET

In order to build wealth, you must know your cash flow. Most of us know very well how much money we make every month but little, if any, idea of how much we spend. Exercising control over poor spending habits is critical to the pursuit of real wealth. Everyone should have a detailed budget broken down into fixed and variable expenses readily available at a moment's notice. Budgets force financial discipline when properly followed and financial discipline leads to faster wealth creation.

10. KNOW YOUR NET WORTH

Assets minus liabilities equals your net worth. You should know what this number is at all times and be very leery of any expenditure that doesn't add to your net worth. Remember, net worth has nothing to do with how much money you make - it has everything to do with how much money you actually keep. If someone has an income of $100K per year and they spend $100K per year, his/her net worth is a big fat zero. Be careful not to fall into a high consumption lifestyle in which every dollar you earn is completely utilized to maintain that lifestyle. Learn to live below your means and you will quickly accumulate wealth.

Danielle is an Investor and licensed sales associate with Williams Realty and Investments. She has a passion for coaching others on building wealth using real estate investing. She can be reached at 773.551.4769 or d_n_johnson@yahoo.com.

You can also visit her website at www.investchitown.com