For those of you who are using credit cards for the first time, or are having difficulty in managing your expenses, budgets can be a bit tricky to devise. Your credit cards are charged one month, but typically don’t show up on your credit card statement for at least 2-5 weeks (sometimes more). This is long after you have enjoyed that meal, worn your new shoes or purchased a book! Perhaps you have even forgotten what you bought or why.

There are a couple of ways you can deal with this.

1. Instead of waiting for the bill, deduct the money from THIS month’s expenses as the expenses are incurred and place it in a ‘holding account’ where the money can gather some interest until the bill is due. This helps to keep the feeling that purchasing on a credit card actually involves REAL money. I try to do this, but sometimes I forget to separate the cash. Naturally, my cash gets spent, leaving a shortfall that has to be covered next month.

2. Use a special program like Quicken or MSMoney to track your expenses. Or use Credit Card Manager to help manage your credit card expenses.

One aspect that I forgot early on in my credit card ‘career’ was to take advantage of points. I saved up my points for quite a while and I ignored the ‘expiry’ notices each month, until the month after expiry when I realized that my hard-earned points had been knocked down a great deal. At that point, I was pretty upset because I had used that card a great deal up until that point, but hadn’t found much worth purchasing through their credit card rewards program. I just waited. After that, I retained the credit card, but I only use it for online purchases and emergencies. So I punished the bank. In reality, my other credit card also did the same, but this time I was more careful to use the points.

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When you are on constrained budgets, you really need to focus on what you spend. I found that I could save quite a bit of money by cutting back on some of the following:
1. Coffee: especially trips to 85C and Starbucks which must have saved about $3-5 dollars almost every day.
2. Cell phone plan: I cut it to the minimum without breaking my contract. This way I saved about $3 per month.
3. Replacing Old Equipment: Fuel and water bills aren’t a problem in a warmer climate such as ours so there were few options for that. We did purchase a new A/C which was quite expensive, but it did result in lower electricity bills.
4. Newspapers: I used to buy newspapers daily. Apart from creating extra garbage, local papers here aren’t really worth a daily expense. So now, I buy newspapers on a Friday (the best editions), plus if I’m in town I buy the weekend edition of either the Financial Times, or the Herald Tribune. While neither of these newspapers is cheap compared to the local ones, it’s money well-spent because I usually spend 2 or 3 days reading them, whereas the local newspapers are barely worth a subway ride’s reading.
5. Carry Less Money: I actually cut my own pocket money by about 50%. Since I don’t go to Starbucks, I usually have money left at the end of the month now. Perhaps also, because I am now more careful with my out of pocket expenses.
6. Avoid shopping: Don’t go shopping in the city or in the malls, you’ll find that it is much easier to keep your cash in your wallet. When you do go shopping, do not carry credit cards, just cash. You can limit your spending to the actual cash you have. That works well.
7. Credit Cards: They are expensive to use, even the best deal ones, if you don’t pay off your balance at the end of the month, and/or you incur charges for late payments. In addition, using a credit card removes the paying for something feeling, because it is delayed by upto six weeks or more. I was too busy to pay attention to the charges on my credit card, until one day I added up the total I had paid for the year. Now I don’t run big balances due, but I was surprised that the amount nearly equalled the amount outstanding.
8. Bank Charges: In a similar vein, you need to keep a close eye on your bank charges. They can creep in in a number of ways. I have an HSBC account that charged about $15 per month if my balance fell below a set amount. That happened a lot when I was too busy. However, I noted another way that banks can penalize you: low interest rates. I kept the account for a number of years, but the interest rate is barely 1/4 of the CD rate, and the balance requirement is high. Therefore, I’m losing the opportunity to earn 4 times that amount. In addition, HSBC interest rates are less than many other banks here. So, choose your bank account wisely. I didn’t.

Happy 2007 Year of the Pig.

saving money tips

This past six months has been quite difficult for me in some ways. Our business revenue dropped by about 20%, and as a result, we faced a drop in our personal incomes of about the same amount. It became my mission as a result to find ways to cut unnecessary expenses, and to my surprise, these ways have been effective. So what did we cut!?

We cut two things: financially related expenses and incidentals.
1. We took a large knife to our insurance bills that worked effectively. We found we were over insured in some ways, or overpaying for insurance in other ways. We saved about

2. We were quite aggressive in reducing our mortgage payments when we had the chance. The temptation when you are superbusy is to avoid dealing with financial issues. You forget that you are busy making money, so you end up wasting money on bad financing deals, higher expenses, poor financial products, etc..

3. I spent time looking for higher interest rates and a more efficient current account this past year. Again, I decided to optimize my income resources as a way to ease the pressure on our finances. It worked well. I managed to double my average interest rate (also thanks to rising rates).

4. We have a car loan that is currently nearly 60% paid up. The interest rate and payments are fixed so there’s not much we can do there. Since we don’t carry any personal loans, we have no room for any improvement on that score, at all.

5. But, we were spending quite a lot of money on credit card expenses, including interest payments. So we took action by paying off our credit cards completely, which took a few months, and then making a resolution to NOT run credit card charges of any kind. EVER.

It’s difficult to figure out how much we saved as a result, but we know we saved quite a bit. I’d guess that we probably saved more than $3,300 over the course of a year or more. Not bad. So, if I can do it, you can, too.

This post was saved and sponsored by The Thrifty Scot.