The Swipe

Debit or Credit? How many times a day are you asked this question? Many of us pay with plastic for both big-ticket items and everyday purchases. Whether it be for convenience or choosing not to carry cash, the swipe is used more often than not.

The best answer: credit. When opting for credit, you’ll save on bank fees. However small, those pennies add up over time. Using your credit card will also incur fees, however, they’re charged to the merchant and not the consumer.

Another benefit is that you’ll build up your FICO score. If trying to repair your credit rating, using your credit card will aid in the process and help raise your score. If trying to establish credit, funding your checking account to pay with credit is a good start as you’re not creating any debt and developing sensible spending habits.

So when given the choice, choose credit. For the consumer, it’s a win win!

The Double Dip

If you enjoy the convenience of ATM withdrawals, using your bank’s ATM is your best bet. If choosing a foreign ATM, your bank will charge you a fee for going outside their network in addition to a second fee charged by the owner of the ATM. This double-dip could cost you an estimate of anywhere from $4 to $15 per transaction. These fees will add up easily and quickly.

Avoid the double-dip and be selective when visiting your ATM.

Overspending

If you keep a household budget, the story of your life can be read in its line items. Mortgage, rent, utilities, insurance, groceries, savings, etc., are itemized to guide you through the year prudently. The problem arises when temptation creeps in. Suddenly your budget is buried in “miscellaneous” purchases. These are impulse purchases and the goal is to avoid these splurges and keep your money in your pocket.

There are telltale signs of overspending. Your credit cards are maxed out to compensate for the negative cash flow. You can only afford the minimum payment on credit card balances. Your spending habits leave little cash to pay your monthly expenses. And a big one, the stress of it all is damaging your health, mentally and physically. The financial and emotional damages are reversible. Here are a few simple steps to save your credit score and put you well on your way to financial freedom.

If you haven’t already, create a budget. If you have one, take some time to make improvements if it’s not working. Take one month to analyze where your money is going. In addition to your monthly expenses, track every purchase. Be sure to include take-out dinners, social events, and your daily coffee run.

Compare the actual costs to your budgeted line items and assess the variances. You may find you need to cut back on entertainment to make bigger payments on credit card balances. Knowledge is power; utilize your budget to improve your spending habits.

Use the cash-only method. Pay yourself a fixed amount in cash on a weekly basis. This is your spending money to be stretched as far is it could go over a seven-day period. Each payday, fund just enough to your checking account to cover your expenses, including necessities such as fuel and groceries. Use your debit card to pay for these items. You’ll know what you need from your budget. Every dollar should be allocated to an expense.

Your goal is to get your checking account down to zero (or as low as you can without accruing bank fees) until the next payday. At the end of the month, if a surplus is left after paying your bills, transfer it to your savings. The goal is to spend only what you need. If there’s no cash available, you won’t spend it.

Consider leaving credit cards at home. You’ll find once your credit card balances are paid off, you’ll have the freedom to make cash purchases. You’ll also see your savings grow at a faster pace.

Practice delayed gratification. Small rewards at scheduled intervals will help motivate you to keep your new spending habits going strong. If you have your eye on that new lawn mower, work it into your budget. Break down the cost into monthly installments over a short period of time. Saving this way will allow you to make the purchase in cash while paying down your debt. You can work any future purchases into a budget be it next year’s vacation, dining out once a month, or a day at the spa.

A little planning, self-discipline, and structured spending will go a long way. When you review your budget at the end of the year, you’ll notice a significant savings and a decrease in debt. Your actual totals, with a slight increase, will be your budget for the following year. The difference being, you’ll have already conquered your habit of overspending.

Bundling

Many of us have multiple insurance policies be it auto, home, life, etc. When shopping for coverage, consider bundling. Purchasing more than one policy from a single firm, known as bundling, will result in less costly premiums. When bundling, some firms will offer significant discounts.

Buyer beware: If you already bundle, reevaluate your premium costs periodically. One-stop shopping is convenient, however, pricing changes over time. A deeper discount may be found elsewhere. It may be worth a look.

Savings Tip

Pay yourself first. Even if you’re paying down debt, make an effort to deposit a small amount into your savings. Whether it’s $5 per paycheck or 20% of your gross pay, take this small step first: invest in yourself.

Figure the amount you can afford before paying your monthly bills and having spending money. Work your savings into your budget giving it top priority. This might require a few cutbacks such as brown bagging your lunch or making your own coffee in the morning instead of stopping in your favorite coffee shop on the way to work.

If this is difficult, get into the habit by not having access to it on payday. If you’re enrolled in direct deposit, set up a split deposit to your checking and savings accounts. Another option is to have automatic transfers made to your savings. The trick is to not have the cash on hand.

Another helpful strategy is to have your checking and savings accounts set up at different banks. That way transfers to an account may take up to 2 days whereas transfers within the same bank are immediate. The easier the access, the more temptation. Get used to living without it and eventually you won’t miss it.

This is about putting yourself first for your future.

Budget Tip

It’s a good idea to overestimate your monthly expenses and underestimate your monthly income. This ensures you’ll have enough to cover any unexpected expenses. It also enables you to put away the surplus for a rainy day fund.

Savings Tip

Pick one day each week to run all your errands instead of running around town randomly throughout the week. You’ll save on fuel costs. You might find a little extra time for yourself, too!