Direct-Deposit Your Paycheck
If your company offers direct-deposit of your paycheck, use it.
First, you can earn interest on your money if you deposit itinto a money market account - and then transfer needed money to youreveryday checking account.
Second, you'll avoid the temptation of withdrawing "just a fewdollars" when you cash or deposit your paycheck personally.
If both spouses work, consider depositing paychecks in separateaccounts. With real self-discipline, you may be able to save onespouse's whole paycheck and live on the earnings of the second.Keeping the deposits separate will facilitate that effort.
Pay Yourself First Using Automatic Deductions
The best way to avoid the "see-it-spend-it" syndrome is to havemoney automatically taken out of your paycheck before it gets intoyour hands. Here are the best places for that money to go:
1. If your company allows automatic deductions for a 401(k)retirement savings plan, have the maximum contribution deducted.
2. If your company has a payroll deduction plan for U.S. SavingsBonds, arrange for a regular deduction.
3. If your paycheck is deposited directly into your bankchecking account, ask the bank to take a fixed amount out of yourpaycheck every month and deposit it in your money market account.
4. Open an account at a no-load mutual fund and have a specificamount withdrawn automatically from your checking account each monthand invested in a stock or money market mutual fund.
Establish a Banking Relationship
If possible, open your checking account at a bank where you canexpand your financial relationship.
For instance, the bank or S&L that originated your mortgage,your home-equity loan or your auto loan is a good place to establishyour personal checking or money market account, because it shouldgive you leverage. You never know when you'll need another loan orspecial services.
Establish an Overdraft Account
Here's a suggestion that can be both expensive and dangerous ifnot used properly. At a time when you don't need money, ask yourbanker for an automatic overdraft line of credit for your checkingaccount.
You'll never "bounce" a check - even if you made a subtractionerror - because the automatic overdraft feature will kick in. Andthis provides a quick "loan" if an unexpected repair or tax bill mustbe paid immediately.
The disadvantage is that it can be very expensive - andhabit-forming. Interest rates on these borrowings run to more than18 percent at most institutions, and the interest is not deductible.
Banks frequently offer the overdraft only in round numbers suchas $100 or $500, so you may wind up paying interest on additionalmoney you didn't really need to borrow. In order to repay theoverdraft, you may have to issue specific instructions when you makeyour next deposit, asking for the overdraft line to be repaidimmediately.
Choose Your Checking Style
The actual style of your checking account system can make a bigdifference on how easy it is to keep track of your money. If youhave a problem with impulse buying, take your checkbook out of yourbriefcase or purse and use a large, desk-style checkbook system.
Make it your most important habit to enter the amount of everycheck in the check register as soon as you write the check. Alsomake sure you immediately enter all withdrawals from automatic tellermachines.
All desk check registers are not the same. Some have threechecks to a page, with a stub for each check. The most useful checkregisters have all your checks and deposits listed on one page,instead of checks with stubs or carbon copies as a record.
It you use this full-page type of executive check register,you`ll find it easier to keep track of your balance and anyunreturned checks, and to get the big picture of your spendinghabits.
Balance Your Checkbook Regularly
Your checkbook doesn't have to balance to the penny, or even tothe dollar. But you should get into the habit of opening your bankstatement every month, and checking off all the returned checks inyour checkbook register.
Also make sure your deposits have been credited properly. Usethe reverse side of the bank statement to do a rough calculation, tomake sure you and the bank are in fairly close agreement about theamount of your balance.
Establish a Bill-Paying System
Next month, pull all your bills in a pile. Locate the due dateon each bill. It's important to set up a system to match yourpaycheck deposits with the money you need on hand to pay your billson time. You may decide to pay bills twice a month - on the firstand 15th.
Set aside a special place, usually your desk or kitchen drawer,to put the bills as they come in. Then stick to your bill-payingschedule.
If you're really organized, you might want to pay bills in thesame order in your checkbook each month. First the mortgage, thenthe electricity, then the insurance bill, etc. Keep the paid billsin a separate drawer, making it easy to enter the amounts in yourbudget book or to deal with any bill-paying disputes.
Use a Cash Management Account
As the financial services industry has grown more competitive inrecent years, it seems everyone wants to help you manage your money.Brokerage firms offer checking accounts and debit cards. Banksoffer stock brokerage services and perhaps insurance. And mutualfund companies offer a combination of banking and credit services.
Consolidating your financial operations with just one or twoinstitutions is an appealing thought. The paper work should be lessconfusing, and your entire financial picture will be consolidated.But there are costs to these services, and you should evaluate themcarefully before using a cash management account.
Typically, there will be a $10,000 minimum to open an account.Some charge a fixed fee ranging up to $100 a year or more, whileothers charge for individual services such as a credit card, checkingor automatic payroll deposit services.
Computerize Your Records
It may sound like an impossible task to transfer the mess inyour desk drawers to a computer program, but that is one of the greatadvantages of computers: Everything has a well-organized place inthe system.
You can use your computer to pay your bills electronically,write your checks, track your budget expenditures, follow yourinvestments, prepare your taxes, and plan your retirement.
Your computer program can make forecasts and projections basedon the assumptions you choose, thereby encouraging you in yoursavings and investments goals.
If you want to figure out how much you should be saving for acollege education for your children or for your retirement, you'llhave to make some assumptions about what your finances are going tobe. Then you can use your computer program to actually see if thoseassumptions will give the desired results, based on the investmentamounts and returns you predict.
My favorite software is Andrew Tobias' Managing Your Money, butthere are other useful programs on the market, such as Quicken. Ipromise that you do not have to be a computer genius to make theseprograms work for you.
Coming Monday: How to protect yourself in this uncertain jobmarket.
Terry Savage's New Money Strategies For the '90s is published byHarperCollins Publishing and is available at bookstores for $23.
