One common thread between most people who are floundering financially, is that they don’t keep track of their finances. This happens for a number of reasons. Some people don’t like budgeting and reconciling. Others want to ignore their balances in order to keep spending. Some just don’t want to be held accountable for their finances. In any case, people can’t improve their financial lives, unless they know where their money is going.
This is the sixth post in a series of Money Fails.
Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort
Keeping a Budget
Anyone who has read my blog for any length of time knows I don’t keep a budget. But, I know how much I spend each month and where my money is going. I know the approximate balances on my investments and bank accounts. I know how much my bills are and when they are due. I have an income that leaves some wiggle-room and money put away for surprises. So, I don’t have to count my pennies at this stage in my life and I am thankful.
For people who don’t know where their money is going, can’t pay all of their bills or are sinking deeper into debt each month, a budget is a pretty good idea. In fact, it’s critical for financial survival. I have been there as well, but I was too stubborn to create a budget. So, I accumulated a lot of credit card debt. I don’t recommend the debt treadmill for anyone. It costs a lot of money in interest and creates a lot of stress. You are way better off with a budget.
It’s not fun to sit down and go over your expenses each month. But, it’s an eye opener to see where all of your money goes. And, it becomes obvious what needs to be cut to balance the budget. The credit card statements alone can give you enough buyer’s remorse to change your spending habits permanently.
If you were lost in the forest, you would need a compass. If you were lost in your car, you would need a GPS. If you are lost financially, you need a budget.
Before they reformed the overdraft laws for banks, I know a person who used to overdraw their checking account regularly. Two years ago, he spent nearly $1,700 on overdrafts. Some of them happened because the banks reordered the transactions, but most just happened because he wasn’t paying attention. One time, I looked at his statement and he had bought seven different small items in one day. So, for a total of about $40 in purchases, he wound up with $245 in overdraft charges. That was a pretty expensive energy drink and burrito.
It’s easy to avoid overdrafts, if you are keeping track of your balance. If you don’t want to your balance your checkbook, you can check the balance quickly on your cell phone, before you pay an extra $35 with your debit card. Better yet, just say No to overdraft and let the purchase get declined. Your bank should have automatically turned off overdraft on your debit card after the reform act went into effect. But, the banks are going around trying to convince everyone to turn it back on. They were making billions on overdrafts and they aren’t happy about losing all of that easy money.
Late Fees & Penalties
Years ago, I paid my fair share of late fees and penalties. Then, I decided it was a colossal waste of money. So, I have been very vigilant in paying all of my bills on time to avoid them. However, I still miss the car registration from time to time and those penalties are huge. There is nothing worse than giving the bank or the government extra money they don’t deserve.
The best way I know to keep on top of the bills is with Bill Pay. Not only can you pay bills electronically, which is faster than snail mail, you can see the last time you paid each bill. You can even set up automatic payment of some bills, so you don’t have to worry about them at all. Online banking and Bill Pay are a Godsend. Take advantage of this technology. It’s often free.
Behind on Payments
One of the saddest things I see is people who get behind on their bills. Soon, they are facing collections, repossession or foreclosure. It’s nearly impossible for most people to catch back up once they are behind, so they can lose a lot of money. Not to mention the hassle and embarrassment of losing your house or vehicle. Another really important balance to keep current is for child support. The penalties are brutal and they can put you in jail.
There is no big mystery to keeping current on payments, you just have to pay them every month. The problems occur when the payments are too high for the income or the income stops. Then, payments can become a nightmare. I try to avoid payments at all costs. All of my cars are paid off and I intend to keep it that way. I look forward to paying off my mortgage in a couple of years, so my only monthly payments are for utilities and insurance.
The Bottom Line
The bottom line is that it’s critical to keep track of your finances in order to get ahead financially. The less attention you pay to your account balances, the more you wind up paying to the banks.
“In the old days a man who saved money was a miser; nowadays he’s a wonder.”
This post was featured on the Carnival of Personal Finance over at Barbara Friedberg Personal Finance. If you aren’t familiar with the Carnival of Personal Finance, you need to check it out. It’s the bee’s knees and the cat’s meow.