Personal Finances Smart Money Management

Being smart with your money is about making the money you have stretch farther and work harder for you.  Lots of chances to make your dollars work smarter for you are out there – practically breaking your door down, even.  Or better stated – flooding your mailbox, e-mail and voice mail.  Smarter decision making when it comes to your personal finance means starting off with a cardinal rule: do your homework.  Taking time to study up on a financial investment choice can only help you.  The more you know, the better your chances to earn, stretch and save.  Life from beginning to end is made easier with money.  Some ideas below will help guide you in the general direction of making smarter decisions for what lies ahead.

Almost every possibility to be smart with your money will include interest management. Understand interest rate calculations and how it applies to your investment.  Take a student loan for example.  Borrowing money for higher education is a smart decision when you consider the long term effect on your financial freedom. states that educated workers with a degree earn over one and a half times that of workers with only a high school diploma – and with a master’s degree, over thirty thousand more per year.  Starting with that alone, you’d be smart to borrow and earn more in the long run even with a monthly student loan payment.  Interest payments over the long run will be one of the factors which keep your standard of living potentially lower.  Start with understanding the daily interest calculator – any student loan you get will have this.  You can make it easier to manage by setting up your own calculator using a spreadsheet and observe what happens to your balance over time after inserting extra payments to principal.  Gather the basic information about the loan: interest rate, principle balance, number of days (in the year = 365.25) and any other factor you may have to consider such as quarterly interest not paid moved to the principle balance.  Then use the spreadsheet to reflect the principle balance as you pay down using minimum monthly payments, and include what goes to principle and interest monthly.  Place extra payments in the calculator to see how the payoff date is affected.  Let’s go through a round number, for example.  January 2012, you have a $30,000 balance on your loan.  You have consolidated and now have a daily interest calculator of: (principle balance * interest rate)/365.25 days.  Your daily interest will be approximately 6.5183% of the principle balance; $259.44 will go to principle, $190.55 to interest (8% interest APR).  A minimum monthly payment of $450 pays off the loan by May of 2019.  Make one extra payment per month to principle only and that date jumps to June of 2018, eleven months earlier.  That adds up to nearly $5,000 in savings.  The smart management can continue when you consider the effect of interest at different stages of the life of the loan: more money goes to interest early on.  Take the same amount of savings, $5,000, and apply it at once in January 2012 and you see a pay off date of September 2017, 20 months ahead of schedule.  Apply the amount instead at the end of the life of the loan and June of 2018 remains the pay off date.  The former plan yields a savings of $9,000.  Make sure you include the smart choice of lenders in this scenario as well.  Consolidated Federal student loans were considered here, and are typically the best way to go.  Commercial competitors like Chase and Wells Fargo are out there, but have to compete well to beat Direct Loan Servicer, loan servicers provided by the federal government.  Consolidation of your loans is an option you get, only once during the life of your loan, and can help in managing the balance.

Now that was a lot of reading for interest management – and was in order considering how much we all pay in interest throughout our lives.  But interest management isn’t the only factor in being smart with your money.  There are other ways to do your homework and make your dollar go farther; auto loans and mortgages being the prime targets.  There are lots of ways that you can lose the advantage of long term savings in this game.  The key to smart money management here is to understand that people are in the business of making money – your money.  Knowing the business and how it operates will help you gain advantage, like knowing the affect of the sticker price in what sale price you get when it comes to borrowing for a new car.  Research and advice from people who have experienced the process will tell you that the larger the down payment, the larger the bargaining chip – not to mention the advantage of less interest over time. With a clear understanding of the process and a large down payment, you will be less likely to tire from the spiel and you will have a preverbal carrot to dangle in front of a dealer who enjoys a short term gain like commission of a sale.  Not to mention the possibility to keep increase in value down the road.  If you haven’t seen already, the pattern here requires patience.  That old proverb, patience is a virtue should be re-coined – patience is a money maker.  Mortgages are a little more difficult as most builders and home sellers aren’t willing to haggle as much in such a competitive market, and the interest rates are set out of their control.  Research and patience is your best advantage to being smart with your money.  Taking advantage of the variety of mortgage options, such as 15 year loans versus 30 year, or a 7 year ARM (adjustable rate mortgage) using an 85/15/15 style payment plan – where 85% goes to the larger mortgage at the set rate, 15% goes into the ARM and 15% for the down payment – or more if you need to bring the PMI (primary mortgage insurance) out of the picture by paying 20% of the home value up front.

Some strategies in being smart with your money don’t involve such investments.  If you are already in that stage of life where most of your income is paying for your current lifestyle, then your approach might be to tackle what changes are available to your current situation; auto insurance for example.  Most auto insurance companies rewrite their policies, and occasionally end up giving advantage to the owner.  Allstate, for example, recently updated their policies and divided them into service packages where each progressively priced option adds an attractive service to the consumer.  Savings for same level service could amount to over $600 per year, more if you went down a level of service.  But these may require occasional proactive inquiries.

The smartest decision you can make, when your financial situation permits, is to invest in your future and your retirement.  Everything mentioned leads up to your future; what you do for retirement should take priority from the start.  Open a 401k or an IRA (individual retirement account) and have the payments directed into the account before taxes.  You will eventually pay taxes on the money, but if properly managed investment gains should offset the due taxes and inflation expected.  This has advantages over saving in that manner, but savings and CD’s should be considered as well as future market performance and economic down turns can change the way 401ks and IRAs yield.  Building a balanced portfolio with conservative to high risk investments, all the while studying and seek advisement, will help keep you in the green when the ability to work comes near an end.  This is another scenario where spending money to learn will likely lead to higher return in the long run.  If you have the opportunity to learn, you may find the short term benefits to be there for you as well – such as stocks. Unless you have the time to truly learn and observe what happens to things like Hedge funds and these types of risky investments, it is better to stick with the typical stock or funds considered more stable.  Learning this can begin with your 401k management.  The managers of your 401k typically offer insight and advise for free – considering fees of the management probably pay for those services, but likely less than if making that choice outside of a 401k plan; in terms of fund performance, you may get extras like Morningstar rating portfolio.

Other smart money ideas are along the same lines of making smarter decisions on how you direct your money.  Credit cards are the interlopers of your stretching dollars.  There is always loads of fine print that could use your attention when it comes to credit card interest management.  One practice most commonly missed by the average consumer is to receive a rate hike after an accidental late payment that goes past the grace period.  The rate can jump for a period of time, disclosed in the fine print, for anywhere from 6 to 18 months.  Always read the agreements, and always pay on time to avoid being penalized by this and other egregious policies established to gain from consumer’s lack of smart financial decisions.  Smart money management doesn’t have to stop there, but can continue on with smart personal financing in your monthly budget.  Ways to reduce your cell phone bill or other monthly expenditures can raise your disposable income – making your standard of living better a few dollars at a time.