How many times have you opened a video or article on personal finance and seen this?
“STEP 1: Set Your Budget Goals”
Oh, gag me with a spreadsheet! If setting nice, simple, left-brain goals could solve our problems, we wouldn’t have many.
Here are some of my own strategies to improve personal finance without reliance on a set budget.
Strategy 1: Carry cash. Say, $300 to $600 a month—you can figure out your own amount. Use this cash to pay for your smaller purchases, like lunch out, drugstore shopping, coffee, haircuts, and so on.
One reason to pay cash is that you see and experience the exchange of your money for goods; the money in your wallet dwindles. With card purchases, it’s like magic! They hand you back your card! Nothing really happened!
Strategy 2: Use only debit cards as much as possible. Leave the credit cards shut in a secure drawer. The advantage is pretty obvious: you don’t increase your debt. To use this strategy successfully, you’ll need to keep an eye on your account balances. Which you do anyway, right? Right??
Strategy 3: If you must use a credit card, be prepared to pay the balance off before the interest-free “grace period” is up.
Strategy 4: If you have a large purchase that you must put on a credit card, and it’s too much to pay off in one lump, pay the largest amount you can and don’t use that card again until it’s down to a zero balance.
A sub-strategy to this is to try to keep at least one card at zero balance at all times.
Strategy 5: Always pay more than the minimum balance on any debt. If you have a mortgage, try to pay more toward principal each month (find out from your lender how to do this). The less debt you carry, the better.
Strategy 6: Use expense tracking. Budgeting and expense tracking may seem like the same thing, but they are not. With a budget, you set monthly goals for what you’ll spend in different categories, like food, gasoline, electricity, and so on. Then you get to play the game of going over your budget or staying under, and this may lead you to throw up your hands!
Expense tracking lets you see what you are currently spending in different categories, compared to income. Your bank may have online tools or apps that track income and expenses for you with a few clicks. By looking back over three to six months, you can see how your average expenses run.
This practice helps you by revealing what’s going on in your financial life. Remember how I said that with card purchases, it’s like nothing really happened? This is one way to find out what’s happening. Which you want to know. Seriously.
Strategy 7: Avoid categories like “Miscellaneous” or “Uncategorized.” Always assign expenses to a descriptive category. For example, items you buy at a drugstore, whether with cash or via debit or credit, could go under “Health care,” “Personal care,” or “General merchandise”—it doesn’t really matter as long as it’s not vague.
Strategy 8: Along the same line, avoid categories like “Credit card payments” or “Finances.” As with number 7, you want to use a descriptive category. Was that card purchase a car repair? It should go under “Automotive.”
Most online tools don’t help you track how much interest you’re paying on outstanding debts. That’s kind of a different issue from expenses. In a later post, I’ll talk about assets and liabilities.
What financial strategies do you employ? Are there any you would add? Which ones do you disagree with?