Simple Solutions
Shortcuts to managing your finances that are guaranteed to save you time and money.
From Kiplinger's Personal Finance magazine, September 2005
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Trick yourself into saving
Don't know where your money goes?
Simple solution: Trick yourself into spending less and saving more.
Lynne Koplitz does stand-up comedy for a living, but her finances are no laughing matter. The showbiz life can be feast or famine, so Koplitz has to make her money last between gigs.
That's particularly challenging when you live in a high-cost city like New York. So Koplitz has come up with a whole repertoire of simple yet effective ways to manage her money. Each month, for example, she has her accountants give her a cash allowance, a throwback to habits she acquired while earning tips as a waitress. Then she divides her expenses into categories -- for clothes, for fun, even for her dog -- and puts money for each into an envelope.
Koplitz also tells her accountants to stash 5% of her income in a secret account. "I don't even want them to show me the money," she says. "When it's crunch time, I know it's there."
The more you make, the more you tend to spend, so Koplitz's savings tricks are appropriate even if your income is higher and less erratic. Not only does she toss spare change into jars -- keeping quarters separate from the smaller stuff to use in parking meters -- but she also puts dollar bills into a drawer. "Then you can grab a few singles to pay for takeout instead of breaking a bigger bill, which is the road to disaster," says Koplitz, who makes it a habit never to break a Benjamin.
To control her credit-card debt, Koplitz carries just two cards -- one of them is American Express, which she must pay off each month -- and uses a "buddy system" by keeping other cards with her accountants. "If I want to use one, I have to tell them what I want to spend the money on, and they can ask if I really want to do this."
Koplitz also jots down expenses in a notebook and tallies them at the end of each week to see if she's over or under her budget estimates. She builds in more than she needs so that she has a cushion.
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Tracking your spending might sound like work, but you don't have to do it forever. Nor do you have to record every penny. An easy alternative is to use your monthly credit- and debit-card statements to see where your money goes. Then you can plug the one or two areas where you're leaking cash, and probably come up with an extra $20 or more per week in savings. That's $1,000 a year -- and a grand is real money (see "What $1,000 Can Do").
Other tricks to add to your own savings routine:
Have your paycheck deposited directly to savings rather than to your checking account. You can transfer money to pay your bills, but you'll think twice about withdrawing additional cash.
Make just one ATM withdrawal a week.
Subtract credit-card purchases immediately from your checking account so you're not surprised when the bill arrives.
When you pay off a loan or credit-card balance, add the amount to payments you're making to the next lender on your list, or send the money to a savings or investment account earmarked for a house, a vacation or a new car.
-- Janet Bodnar