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Personal Finance

Fix Your Finances
In 4 Easy Steps

by Liz Pulliam Weston

 Have you paid a late fee on a credit card or bounced a check in the past year?  Did you misplace a bill, a statement, or some other financial record?  Are you confused about how much of your net worth is tied up in stocks, or exactly how much credit-card interest you paid last year?

Do you ever wish you could spend less time worrying about money and bills?  If the answer to any of these questions is yes, it’s time to take some steps to streamline your financial life. A few basic steps can save you time, money, and headaches.  You may need to invest a few hours upfront to get your system in place, but once it’s up and running, all the effort will seem more than worthwhile.

  1.  Use direct deposit – This would seem to be a no-brainer, but one in three workers do not take advantage of the opportunity to have paychecks deposited directly into a checking account.  Instead, these workers stand in line at the bank or even worse use check-cashing outlets that chew up a chunk of their pay.  If you haven’t already, be sure to talk to your payroll office about setting up a direct deposit. You’ll need to sign a form and provide a voided check.  After that, the checks roll in like magic.
  2. Get overdraft protection – Bounced checks are expensive and embarrassing.  Protect yourself and your checking account by setting up overdraft protection at your bank or credit union.  Most overdraft protection comes in the form of a line of credit that kicks in when you write a check for more than the balance in your account.  You’ll pay a small annual fee typically $10 to $30 a year plus interest charges on whatever amount is charged to the line of credit.  If you avoid even one bounced check each year, the account will probably pay for itself.
  3. Put your bills on automatic – There are three basic ways to do this:  direct payment, credit-card charges, and online bill payment.  With direct payment (also known as automatic payment, direct debit, or electronic funds transfer), you authorize a biller to make a payment directly from your checking account each month.  Some mortgage and student loan lenders even offer an incentive for setting up these recurring payments by giving you a break on your interest rates. Your account is protected by federal laws regarding electronic funds transfer, which, among other things, prohibit the biller from taking more than you authorize.  If you’d rather have a middleman between you and your billers, in many cases, you can have recurring charges made to your credit card. (Your issuer can provide you with a list of billers whose charges they accept.)  This method should only be used if you always pay the credit card off in full every month.  Any convenience offered by automatic credit card charges will be more than offset if you’re paying interest on that money.
  4. Online bill payment systems typically offer the most flexibility.  You can not only pay your bills electronically but receive them that way, as well.  You can also easily set up recurring payments for your basic accounts — your mortgage or rent, car payment, student loans, health club, and any other bill that stays the same from month to month. With bills that vary, such as your credit cards, you can set up two payments: a recurring one that’s sure to cover any minimum balance that might be due, and a second one that varies from month to month, depending on your balance and your ability to pay.  This way, you avoid any late fees while still maintaining control over when the bulk of the tab gets paid.

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