Maintaining Your Money

any of us believe that if only we had more money, we would be financially better off. So, we seek a better paying job, take on a second gig or launch a business venture to rake in more money.

It’s phenomenal to earn more income, but when we haven’t ever learned the basics of wisely managing our money, we end up in the same financial position-no matter how much our finances increase.

Then we scratch our heads wondering why we never seem to get ahead.

In fact, too many of us appear financially successful, but we have little or no savings, and embarrassing balances in our checking accounts. One unexpected financial emergency can cause our lives to tumble like dominoes.

A recent report released by the Pew Research Center found that in 2009, the typical Black household had just $5,677 in wealth (assets minus debts) compared to the average White household with $113,149 in assets.

How do you get ahead? Start with five basic building blocks of personal financial management:

1. Balance your checkbook.  Keeping your account register balanced is a simple step you can take to save hundreds of dollars each year. As more people have begun to rely on technology, the practice of keeping a written ledger for your checking account has been lost. The risk of checking balances online is an incorrect balance. Besides that, you may forget about an automatic debit or an outstanding check that has yet cleared the bank.  An average bank overdraft charge is $34 a pop, and that really hurts. By maintaining a balanced account register, writing down each purchase and every bill you pay, you will know much money you have to spend long before you swipe your debit card.
2. Create a budget.   Before you start cringing, think about a budget as a spending plan. Instead of wondering where all your money went, with a budget, you are telling your money where to go.  Budgeting is the process of analyzing inflow versus outflow of cash each month to balance your spending. This process helps you identify excessive spending in one area that you can apply to other financial goals. Also, if you receive a windfall of cash in a given month, you will know where to put it. Without a plan, you are more likely spend the extra cash on a “want” like your dream trip to the Fiji Islands instead of getting the new roof you need or paying your property taxes.
3. Spend less than you earn. The number one key to financial success is to avoid spending as much as you bring in. A guideline for balanced spending for your net income is 70/20/10: 70 percent for living expenses, 20 percent for savings and 10 percent for yourself.  The dual power of a detailed budget and spending guidelines will help you keep more money in your pocket. It’s not how much you make, but the secret to financial success is what you do with what you make.
4. Reduce Debt.  Eliminating debt has the greatest impact on improving your financial position. Debt robs your future. For example, imagine having a $3,000 credit card balance. The national average interest rate on credit cards 14 percent, and the required minimum payment is $65. If you paid only the minimum payment, you will pay about $3,000 in interest alone and it will take almost 18 years to pay it off. So work hard to pay off your credit card debt.
5. Save more.  You heard the saying, “pay yourself first.” You are your most valuable asset, not the clothes you wear, the car you drive or the house you live in. Saving pays for the future. If you spend it all today, that’s all you’ll have. Start saving a small amount each month, even if it’s $10. Saving $100 per month is $1,200 (not including interest). If you make more, save more, but the key is to get started and do it consistently. 

The key to improving your financial position is developing better habits and behaviors. Growing your net worth does not always mean making or investing more money. Most times, it happens by taking care of what you already have in your hands.

If you are interested in learning more about money management, Money Smart Week in Michigan is April 21- 28, featuring free workshop and online seminars.

Samirian Hill, a financial educator, is founder and president of BudgetWise Financial Solutions in Southfield. 

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