Photo by: ajajulian (Stock Exchange)

Household savings is one of your first lines of defense against debt, but most people have more experience with credit than they do with saving cash. If you’re having trouble putting money away, use a little psychology and your bank account to help you out. Remember: it takes longer than a day or two to settle into new habits, and though resolving to save more and spend less is a good start, you’ll have to find a way to endure after enthusiasm starts to dry up. That’s where “Keep the Change” comes in.

Out of Sight, Out of Mind – And Into Your Bank Account

Several banks offer programs like “Keep the Change” which allow you to save an extra few cents from every purchase on your debit card; that is, the leftover “change”, rounded up. This amount is deposited into a savings account and you’re never aware of it; some banks even match it to some extent or offer extra incentives over time for leaving that money where it lies. Over a few months, this can amount to hundreds of dollars: enough to reach a small savings goal every year or find “extra” money for a vacation.

Big Things Come in Small Packages

Though this is only one savings tool, it is a powerful one. Since you never “see” that money, you can’t miss it, and it starts working for you right away. It may not seem like much, but think about this: every year the Treasury Department spends millions of dollars minting pennies and nickels – for, on average, more than their face value. Every time a coin is minted, that money adds up; and as taxpayers, we’re well aware of it. You won’t be making millions of debit transactions, of course, but there’s no reason the same principle shouldn’t help you reduce your debt.

Is Your Bank Working For You?

In a world of mounting bills and rabid debt collectors, this might seem like a strange question. But if you want to start saving from scratch, it’s an important one to ask. Take time to re-assess your bank and what it has to offer you. Value-added features like “Keep the Change” are useful, but they’re only one part of ensuring that a bank is really right for you. Look at your account features and things like overdraft fees, maintenance fees, and the quality of customer service. At a time when big banks are often re-instating monthly maintenance fees, smaller regional and local banks, as well as credit unions, are hunting for more business. You’re always entitled to move your money.

A Journey of a Thousand Miles …

Big, sudden changes in spending habits are like New Year’s resolutions: they start with a bang, but they’re not likely to stick. If saving is new to you, look for small things that add up to reasonable, but valuable goals. Most importantly, take action. Reading this blog is a good start, and there are two other things you can do right now: take a hard look at your bank, and take a hard look at the “other guy.” You might be glad you did.

Photo By Declan Jewell(flickr)

Here’s another way to protect your budget – take advantage of the free account balance alert feature that many banks now offer. You can request an email you or a text message to your phone letting you know when your account balance falls below a level you specify or when your direct deposit paycheck has posted. They’ll also send reminders of when your bank payments are due, such as credit card debt or other lines of credit.

While there’s no guarantee the alerts will protect you from overdrawing your account or being charged fees you weren’t anticipating, they will let you know where you stand. If you do overdraw or get hit with fees, the alerts will allow you to take immediate steps to get back on track paying your bills if you break your budget.

You can prevent overdrawing your account, which is especially important if you’re still using a debit card. Instruct the bank to remove the ability to overspend from your debit card. Make sure the bank reduces the amount you can overdraw to $0. This is quite an important move for budget protection. It also keeps from getting into debt with the bank by having to worry about having an overdraft line of credit.

Once you’ve run out of funds, banks typically allow you to keep using your debt card as a credit card. Sometimes, they’ll even allow you to withdraw as much as $400 from ATM This allows them to charge you interest on the amount of the overdraft, which can be quite costly.

Probably the best way to limit overdrafts and otherwise spending more than your budget allows by getting rid of the credit and debit card. Just carry the amount of cash you have budgeted.

Similarly, avoid store credit cards. There’s so much advertising and so many incentives for consumers to apply for these cards and keep using them. But these are high interest credit lines that end up offering you no bargains. Not surprisingly, they are a bargain for the credit card company. You shave a few dollars off your purchase, they get hundreds in interest payments. That’s why you need to take only the money you’ve budgeted when you go shopping

These are all great ways to protect your budget and keep it working for you. Remember that it’s an important asset so you need to protect it from the biggest threat is has – your own ability to splurge and take yourself off track. .

Too Much Credit
Photo by: Andres Rueda (flickr)

Looking through some of our older articles on UWSA I found some on the subject of Debt Stacking. A few people have asked me whether this is a good idea, and whether it does what it says for people. I’ve never used debt stacking myself, though it is really just a high tech way to follow through on making sure you’re not paying a bunch of extra fees and interest to maintain multiple credit lines. That is a pretty common sense part of maintaining your credit rating. Here’s a little on making debt stacking work, and seeing if it’s right for you.

Firstly a little on what debt stacking is. The basic concept is that once you pay off a debt with a monthly payment you continue to apply the money previously allocated to the monthly payment to the payments for other debts. If you’re trying to get out of debt it’s pretty obvious that is a good idea. What is not obvious is which debts to apply the freed up money to.

Mathematically if you want to get out of debt faster there is a relationship between both the amount of a monthly payment, the balance, and the interest rate. No I don’t know the formula off the top of my head, but there are a lot of computer programs that do, and will allow you to input basic information about your debts and spit out the order in which to pay them off or ’stack’ them.

Tip number one would be not paying a lot for a program; if the goal is spending less repaying your debt and getting out of debt faster burning a bunch of money on a program doesn’t make sense. There are free tools out there to figure this information out, and sometimes professionals will offer that information free of charge or at a reduced fee as well.

One thing debt stacking does do is to avoid what is called ‘the shotgun approach’ to repaying debt. This is where one month you put a little extra on one bill, and next month you do another. Using that approach is a great way to maximize how long you stay in debt.

Tip number two, which is true of any debt repayment strategy, is stick to the plan. The benefits of debt stacking can be great, and include very reduced interest on one’s debts. These benefits drop fast though for every month you don’t make the payments in the manner suggested. If you cannot do this by yourself debt consolidation with a credit councilor or debt consolidation service might make more sense.

Debt stacking can be really helpful in repaying debt, and save you a ton of money. It is also usually free and because generally you are not modifying your repayment plan significantly it can help build your credit rating as well. The key is keeping to the plan, and knowing your limits. As always though the plan only works if it works for your.

Too Much Credit Photo by: Andres Rueda (flickr)

Photo by: lyudagreen (flickr)

On paper, a budget may not look like much. Just a list of income and expenses. But if you’re doing your job and following that budget, you know what a critical asset it is. Your budget is keeping your finances – and your life – on track. So why not treat your budget like the precious asset it is by protecting it as you do with jewelry, a fine watch or a family heirloom?

Protecting your budget means following it. It means remembering to make payments when they’re due. It means saving and spending and donating according to a carefully crafted plan.

You can protect your budget in several ways. Here are some suggestions for the technically inclined and the not-so-technically inclined.

I use technology myself. I put my family’s budget into my computer’s Calendar. Then I sync it up with my digital organizer, which, in my case, is my cell phone. This way, I get automatic updates right on my cell phone every month when bills are due.

There are several software programs that do this too. You don’t even need a computer because even cheap cell phones usually include calendars which allow you to input recurring events.

On my cell phone, I get 2 notifications, the first one comes two days before a bill is due and the second one comes on the day the bill must be paid. This makes it very hard to forget when expenses need to be paid.

By due date, I mean the date I need to send a payment for it to get there in time. Some payments are mailed and others I handle online through my checking account.

For those who prefer not to deal with gadgets, paper calendars can work just fine. It’s best to put in expenses at least one month in advance and to check the calendar every day. Put it someplace that you’re sure to see it. And don’t forget to schedule the day to input your expenses for the next month or the next several months right in the budget calendar.

You can also use a personal date book. The important thing is whatever helps you to remember when expenses are due with enough time to make sure the funds are available for them.

Have you got a great method for staying on track with your budget? Tell us what’s working for you!

Photo by: mangpages (flikr)

Since living through the 1990s economic collapse back home in Russia, I have always preferred using cash instead of credit cards – or even debit cards. I think I just got used to cash.

Since there was no equivalent of the US Federal Deposit Insurance Corporation (FDIC), many people lost all their savings when banks crashed. Forget credit – almost no one could obtain that.

The result? Most of us just came to accept that cash was the only option. The upside is that using cash made it very difficult to run up excessive debt.

Without getting into a discussion about the complexities of post-Soviet banking, I’m feeling a bit of dé ja vu these days. Bank collapses and difficulty getting credit and economic hardships..it’s all so familiar. The time has come to take a closer look at the merits of using cash.

It’s not just the parallels between Russia’s collapse and the one we’re living through now. There are also timeless reasons to use cash instead of a credit or debit card.

The first advantage of using cash is that you know where you stand financially. You don’t have to look at a bank ledger or a checkbook balance or a web page. When you need money, you know right where it is and how much you have. You also don’t have to write down how much you’ve spent in order to know much is left because it’s right there to count. You don’t have to worry about any fees caused by usage, as you might with credit or debit cards. Cash is also pretty much universally accepted; you don’t have to worry what bank’s name is written on it.

The second advantage of cash is that it can help keep you out of debt. There are so many ways that credit and debit cards encourage you to rack up fees, and I’ve seen people get into trouble with too much debt or with overdraft fees. With banks seeing lower profits on their traditional services, they are coming up with new and more complicated ways to recoup those loses through some rather creative fee strategies.

You can avoid those new tricks of the trade by sticking to cash. It reduces the need to consult the fine print in the latest correspondence from your credit card company. And watch out for new rules on checking accounts and debit cards. Cash also keeps you from overdrawing your account, avoiding interest charges and possibly other hidden fees.

Another smart move is to have an emergency fund in cash. While it is not a bad idea to have an emergency credit card, keeping out of debt if you can is a better idea. In Russia, we called cash emergency money “black day’ funds.” A black day is a day when everything seems to go wrong at once. One Sunday morning, a tire blows out and the fridge breaks down. With an emergency cash fund you don’t have to reach for a credit card or worry about whether the bank is open or if you have enough money in your account. Your can pay the car mechanic and the appliance repair person from your emergency fund.

There are some drawbacks to cash. Recovering stolen cash is very difficult so you have to worry a lot more about security. You also can’t do much shopping over the internet. And you need to budget your expenditures well as the only amount you have is the amount that’s in your pocket. If you can’t cover the groceries with what you have, you need to make another trip to the bank and then to the store. But these are obstacles that be overcome. After all, people used cash for centuries, when there was no such thing as a credit or debit card. And, as I said, I’ve gotten used to it myself. And the benefits of using cash for most transactions, having an emergency cash fund, and tossing out the credit or debit card except in case of emergencies.