by Katerina Nikolas

Created on: August 05, 2011

The ease of credit over the last few decades has resulted in a change of financial habits. Many people slipped into the habit of living beyond their means, ending up spending today’s money to pay the interest on previous borrowing. Current economics have forced a change in these habits as people begin to understand the necessity of budgeting to live within their means.

There is no great secret to managing money wisely. Many people have the basics instilled early and see the flaws in unnecessary borrowing. The crucial things to master are living within your means; avoiding all unnecessary credit; never paying to use your own money; and the savings habit. Amassing debt simply means that you work today to pay for the past, thus reducing your disposable income which could instead be working for you.

Many people have started to draw up budgets and pay down debt. Whilst eliminating small things from the budget to make savings, more often than not the most costly expenses are overlooked. Going without a daily coffee takes precedence in new savers minds over cutting crucial costs such as high interest on mortgage, loan and credit card payments. These high cost items should be reviewed and negotiated, along with other obligations such as insurance, utilities and bank fees.

Even as people start to cut costs they still waste money unnecessarily on bank fees, cash advance charges on credit cards, foreign exchange charges on vacation, paying for ATM withdrawals, and the biggest con of all: paying to use their own money by paying excessive fees on pre-paid credit cards. If the monthly or annual costs of these fees are totalled they represent an awful lot of money thrown away. Switch accounts around to use fee free banking and take care to understand the small print on credit cards and loans, paying attention to penalty charges and hidden costs outlined in the small print.

Ideally credit cards should only be used for the benefit of cash backs and statement credits, and zero percent loans. In order to use credit cards wisely one should only ever spend as much as can be repaid within the billing period, to amass cash backs. The interest rates become immaterial as full balances paid on time are free of interest. As much of the monthly spending should be put on credit in this way whilst the monthly salary earns interest, a feature of some fee free checking accounts. This habit will also help to ensure an excellent credit score which is vital to securing low mortgage interest rates and lower insurance premiums.

It will always be difficult to manage money wisely unless a contingency fund is set aside for unexpected expenses, thus eliminating the need to borrow. To establish a savings habit the first thing to do when income is received is to set at least 10 percent aside for savings by paying oneself first. It will soon become second nature and if one has been paying down debt then the amount paid towards debt can be redirected towards savings once the debt has gone. It can become addictive watching savings balances grow, knowing they can be used to purchase goods without borrowing, invested, or used to pay down mortgage debt early.

These simple financial habits are the basic key to managing money wisely. Whilst at first it may appear that life styles will be affected, the actual result after a little initial sacrifice, is freedom from debt and more disposable income to enjoy.

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