Modern Money: Free Range Money

DeniseBy Denise Marinacci

I am frequently asked what I think about the popular TV financial gurus and their messages on overspending, under saving, or just poor money management.

What I know for sure is that blame and shame just don’t work! We tend to shrink and withhold in the “in your face” method. I’ve seen people agree to anything just to get the bully to go away.

Many people are struggling on one salary or less and have no idea how to pay their monthly expenses, much less cope with the occasional emergency. Sure there are folks that have damaging habits but here’s what is really going on.

After the banking debacle and stock market scandal, there’s now so much noise in the financial arena that it’s hard to know who to trust. On top of that, industries have done little to earn back the public’s trust or encourage financially healthy customers.

One good example, credit cards; plastic is heavily marketed using “rewards” as a draw but are really huge profit center for banks.
– Annual fee for just having the card
– Interest on the unpaid balance
– Overlimit and late payment fees
– Card swipe fees (merchants are now able to pass it on to consumers)

A little math to illustrate my point:
At the counter:                             $200 X 4% = $8
Interest on unpaid balance:      $200 X 18% = $36
Total fees:                                       $36 + $8 = $44
True cost of your purchase:         $200 + 44 = $244

Now apply this to the bigger picture. What’s your interest? Add up the interest you’re paying each month on your credit cards, auto loan, student loan, mortgage, line of credit. For most, they are paying more in interest and fees than the original charge.
Take a look at your own financial life, how much is made up of credit? How much is cash?

Cash = Checking + Savings: 44 percent of households – nearly half of Americans – are living in liquid asset poverty. These families don’t have the savings to cover basic expenses for three months during a financial emergency such as a job loss or medical emergency.

Nest Egg: Money saved or invested for a specific purpose, i.e. education, retirement, or vacation.  According to the New York  Post, “Not even the high penalties that make it prohibitive to tap into 401(k) accounts were a deterrent as a record $60 billion was yanked from nest eggs to pay for mortgages, car loans and credit card debts”

Here are five simple things you can do every day to make a guilt-free transition to a more empowered financial life.
– Check your bank balance online. You can’t improve what you don’t know, so stay informed.
– Pay a bill early. Don’t wait, if you have the cash, pay early and avoid fees.
– Use cash instead of your credit card. If you are used to simply swiping away at the register, start storing your credit card in a less accessible place in your bag or wallet. Over time, you’ll forget it’s there but when an emergency presents itself, you’ll quickly remember.
– Add an extra $10-$20 a month to pay off your debt faster. Over time ,you will save hundreds of dollars.
– Open a savings account that is not attached to your checking. Find the largest interest rate and set up a small ($10-20) automatic weekly deposit and forget about it. Surprisingly, it will really add up.

It’s true, times have been tough and maybe you haven’t made the best decisions, but you are not powerless. Boost your confidence day by day – guilt free.

Denise Marinacci, owner of Flaunt Financial, writes a monthly finance column to My Edmonds News.

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