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How To Handle Your Money - Go Manual, Avoid Automatic

I advise many folks on the best way to manage their money, stay out of debt, and live within their means.

First, stop all the money leaks.  Just as a small hole will sink a large ship, so will small financial leaks sink a family budget.   Where are the financial leaks?  Look at your cable bill.  Is it above the the basic rate?  Plug the hole.  What about occasional gambling?  Plug that hole!  Catalogue shopping?  High auto payments?  Mall shopping?  Plug those holes!!

Second, avoid automatics, such as:  (1) direct paycheck deposits; (2) MAC machines; (3) Debit cards; (4) monthly service charges on bank accounts and/or credit cards, such as internet service provider charges and health clubs; and (5) debits of accounts to pay auto loans, personal loans, “savings plans” such as credit union accounts, and the like.

Third, Go manual: (1) Visit your bank and deposit your paycheck using a “split deposit.” The first portion of a split deposit is just enough into checking to pay one-quarter of the mortgage, car payment, utilities and other fixed expenses (assuming payday is every week).  In other words, only earmarked, non-discretionary, money goes into the checking.  So, as you can see, you simply can’t rob the account with a MAC or a debit card because you know you are dipping into money needed for the house or the car or utilities, and that is a “no-no.”  The second portion of the split deposit goes into your pocket in cash to carry you through the week for grocery, gas, and spending money.  This we call the “cash bank.”  You will always know how much gas to put in your car or money you have available when grocery shopping.  Just look in your pocket.  You will know if dinner is going to be peanut butter and jelly, lobster, or steak.  There is no doubt about it.  You will know whether or not to say, “fill it up” or “$10.00 please” at the pump. You will be amazed at the comfort level of knowing where you are financially any day of the week. You are no longer a ship without a rudder.

If any money is left over at the time of the split deposit, buy postal money orders in modest amounts and put them in envelopes marked for future needs such as “new tires,” “wedding present,” “auto repairs,” “birthday,” “holiday present” or whatever the future need is.  This “envelope system” works to avoid “emergencies.”  My clients are shocked to see how many “emergencies” they had with credit cards, and how very few without credit cards.  The fact is, folks “manufacture” emergencies to justify what they know is overuse of their credit cards.  “I had no choice” is the familiar justification and ultimate excuse.  With the simple envelope system, “emergencies” can and should be avoided.

There is no magic in creating and sticking to a family budget.  Adopt the above plan or invent one that works best for you.  No matter what, you need a budget which plans income and expenses.

© Thomas J. Subranni, 2007

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