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Friday, November 1, 2013

Money Management

Money Management

Money as Time

     I won't spend too much time on this subject of time. However I want to establish a baseline for everything we are about to discuss. How do you get money? You agree to go to work in order to get paid. Why?

     You want food, housing, health care, products, and services. You have time, 24 hours a day approximately. You can't go to a car dealership and give them your time for the car. They don't want it. There are occasions where your skill is worth as much to someone else as their skill is to you. You'll create a custom fish tank for them and they'll redo your old classic car for you. When people exchange their products  or services with each other this is called "bartering". And it's still alive and well in 2013, maybe even on the rise, but it's still not the predominate way of obtaining what you want. In our society most people want money.

     Time is the one thing you have that you cannot get back. Once you give 1 minute to one thing you cannot take that minute back and do something else with it. That minute has been spent forever. It cannot, naturally, be redeemed. If you go to work you are selling a piece of yourself, your time. You agree to give someone 8 hours of your day plus travel time in exchange for $5/Hr, $10/Hr, $20/Hr, $100/Hr... why? Why on earth would you give your time, which you can never get back, in exchange for money that will be gone quickly? Well you need things. You need food, clothing, housing, and provisions. Also, you WANT things, like entertainment and enjoyment. Guess what? It's OK to WANT things. That's not evil or bad. Psalms 23 promises that if we serve God we SHALL NOT WANT for any good thing.

     What makes one persons time worth $5/Hr and another persons time worth $100? Business owners hire people to solve a problem or do things they don't want to do. If I don't want to mow my lawn, but the lawn needs to be mowed, someone else will have to do it. Either I get over my not wanting to and do it myself, or I PAY someone else for their time to do it. At what point do I give in and pay someone? I will pay them when my income and desire to not do it, increase past the point of my lacking income or desire not to spend the money. In other words, when my time becomes more valuable to me than the money it takes to pay someone else for their time.

     Cost of time then is equal to how much your time is worth. Low paying jobs are typically low skill and low thought jobs. It pays very little because nearly anyone could do it and there are MANY people competing for that paycheck. High paying jobs are those that require more skill, training, knowledge, and/or experience because those jobs are harder to do right. Less people have those skills and therefore less people are competing for those jobs. In a down economy where many skilled workers are looking for work, employers can pay less for those jobs because more applicants are competing for the jobs. In a great economy where there are more jobs that skilled workers to fill them the pay will be higher to attract more people to come do the job.

     What is the point to all of this? Your time is worth something to you. You alone can decide what your time is worth to you. And employers will decide what they are willing to pay for someones time. The job you land will depend on your ability to convince someone to pay you what you want for your time and your willingness to sell your time for a price they are willing to pay.

     Is there another way to get more money for less time? Possibly. If you want to start your own business you could sell your time by creating a products, providing services, or solving problems with creative solutions that people want or need. Then instead of your employer finding those buyers, selling the product or service and then paying you to deliver it, you erase the middle man and keep a higher percentage of the profit for yourself. You can also provide things people want or need directly. If you gain income enough to purchase a home for yourself and another home to rent, someone can rent the second home from you because they want a home but cannot afford to buy one. Now you are making money by providing a real need of another person, but it's costing you virtually no time at all. These are just the surface of this topic. Anything people need or want can equate to something you can provide with enough Time and/or Resources.

     If you are unhappy with the dollar amount you are selling your time for then you must decide what you are willing to do about it. You must find a way to obtain a higher price for your time. You could get more or different training, change fields, start a business or service, sell a resource, etc.The value of your time is found and the intersection of "what you are willing to sell your time for" and "what someone is willing to pay you for it".

Money as a Tool

What IS Money? You exchange your time for money? Why? You get money by exchanging your time for it. In simple terms money is a tool. As with any tool it can be used for good or misused for harm. You can use a hammer to drive a nail and build a house, or you can use a hammer to break a window. One is "Constructive" and one is "Destructive". It was not the tool that decided it's use, but the one who held it.

Money is neither good nor bad. Some misquote a bible verse that by saying "Money is the root of all evil". It is not, that is not found in the bible.
1 Timothy 6:10 CEB

The love of money is the root of all kinds of evil. Some have wandered away from the faith and have impaled themselves with a lot of pain because they made money their goal.
 The LOVE of money is the root of many (all kinds of) evils, not all of them. Money wasn't the issue, the Love of Money is. What you do with Money will bring you blessing or curse. Some call Money an amplifier. A good person with money will be better and a bad person with money will be worse. It is illogical to be a giver and tither and love God feel that Money would change that. If that person gets money they'll give more, tithe more and love the people of God more with that money.

Since money is a tool, we should have a heart set with the right motives before we take to getting any. We should understand that God has made us Stewards over his Kingdom and therefore we are responsible for the things he gives us and we are to use them to further His work. In the parable of the Talents three men are given money by the Master. Matthew 25:9-19. The reward was given to the two that used it wisely and grew it, the curse was given to the one who misused it and misunderstood it. If you want to live in Blessing and not Curse, you must understand Money and how to use it wisely. Therefore what talents, gifts, knowledge, skills, money, time, resources, etc, have you been given by God. He is expecting you to understand those, develop those and multiply them for Him and increase your own life in the process. It's not only possible for you to become wealthier than you are today, it's your responsibility under God to do so!

Balancing, Budgeting, and Bookkeeping

  • Processing and Posting Crash Course

Banks operate under the Federal Reserve. In basic terms when you deposit your check with Bank A and the  check is drawn off of Bank B, Bank A sends that to the Federal Reserve who then sends it to Bank B for processing. Bank B then turns around a day or two later and sends the money back to Bank A through the Federal Reserve again. The Federal Reserve processes these payments overnight. If the Federal Reserve is closed banks cannot process payments to each other. Therefore processing is done Monday NIGHT through Friday NIGHT. The posting of these items is available for your viewing at some point during the night, no later than early morning the following morning.

So if you're check is deposited on Monday you would see that check available Tuesday morning after it's processed as a courtesy to you. I say courtesy because the bank you deposited the check with may not have  the money from the other bank for a week or more (although due to electronic processing this whole thing happens faster and faster as the days go on). If the bank puts a hold on your check it's because they don't want to loose and feel there is reason to believe the money may no be there when the try to get it.

This process means there is no processing on Saturday night, Sunday night, or Holidays. If you deposit a check Friday it will usually be available Saturday morning. If you deposit a check Saturday it will usually be available Tuesday morning. Not Monday, remember there is NO processing on Sunday night!

Checks and ACH
This processing is now making things more complicated than ever because checks are now clearing faster than before, not giving you any "catch up time". Also as checks are now processed electronically through image capture there are more errors now. $5.00 is sometimes read by the computer as $500. This causes you an overdraft, delays, and a wasted phone call because the bank doesn't know it was wrong until you tell them!

Some companies take your account number and routing number by phone or online and then process the payment that way. This is called ACH. When that is done the company retains that number on file for years. Many of the claims filed at banks are on transactions processed by companies in error, taking the wrong amount or the wrong date, taking payments in ways that weren't agreed to, taking payments that were not asked for, etc. It's your word vs theirs so you may or may not win the claim in these cases.

The safest thing you can do is relegate checks to a museum where they belong and use other payment methods. If you must keep a checkbook on hand for "just in case" do so in a locked file cabinet or safe and use it as a last resort. Paper Checks, E-Checks, Check-By-Phones, and all forms of using your account number and routing number account for more errors and claims than any other payment method.

The only company I'd give suggest in good conscience to give your account number to is your employer for direct deposit, IF you trust your employers information security measures. If you don't, you should get a new job anyway!

When you write a check, give your account number/card number online or over the phone, or in any way provide your banking information for a payment or withdrawal it will go through this processing and may or may not show as pending before it comes out. It's nearly impossible for the bank to tell you how much money you have because they don't know what you've done, only what they've received.

Card transactions still go through this same processing, however they usually show as pending while they are waiting to be processed. I say usually because this is NOT always true. Even if you ONLY use card and never checks or check-by-phones or e-checks you're balance may still not be accurate. This is because cards can be used two ways.

PIN/POS purchases typically clear the same day they are done. If you are having trouble with balancing your account try using ONLY PIN purchases and never "credit" at the machines.

Checkcard/Credit purchases are cleared through the credit card companies. Usually Visa/Master Card. These transactions take two steps to process. First the merchant "authorizes" the card which is when it shows as pending to your account balance and you balance reflects that pending purchase. You swipe the card for Gas, they don't know how much you are buying so it "Pends" for $1. You swipe your card at the restaurant and it "Pends" for either the Bill Amount or 20% over the Bill Amount. Then you finish your purchase.

Later, sometimes days later, the correct amount of Gas/Restaurant purchase posts to your account and that incorrect amount disappears.This is why it's completely normal for the wrong amount to be pending and therefore you balance would be wrong if you trusted the one you got from the bank. They don't know what your final bill was for, only the authorized amount.

Sometimes the wrong pending item even disappears like it never happened, and then the merchant finalizes it weeks or months later causing it to post to your account. If you are not keeping track of that you'd think it cleared when it didn't and spend the money again, you end up overdrawn and mad at the bank but it was your choice not to keep track and you spend the money twice.It's common for catalog or online orders to pend for days, disappear and come back much later because the item you wanted was back-ordered and they don't finalize it until it's shipped.

This is also common when using your card over the phone or online to make a payment on a bill. It may pend, disappear and come back later causing an overdraft. Not the best option for making payments if you are having trouble with balances.

The one and only SURE way to know your balance is to keep a record book, separate from the bank or online banking, where you write all items in and out and keep track of a running balance. Then and only then will you be sure, if you didn't make any mistakes, that the balance you have is MORE accurate than the one you get from the bank. This book is called a "Register" in banking terms.

Since that is not likely or practical for MOST people in today's society the goal then is to minimize the amount of items that could throw you off so that you don't have to keep track of everything. As I said earlier you could use PIN for many things and PIN almost always clears the same business day so then you could minimize errors in your balances that way.

You could take out cash and use that instead of your card or checks and then there would be no transactions to record or worry about. You could take out cash and buy money orders and send payments to bills that way so that you don't have anything clearing later through nightly processing.

Bill Payment Services
If your bank offers an online bill payment service, and most good banks do, you could use that. This is the best option for the internet savvy person. Bill payment services typically take the money out of the account first, before sending the payment essentially acting as a money order would. Therefore there is no risk that the item would clear later causing an overdraft. Most bill payment services have both automatic and non-automatic options.

For balancing purposes I suggest using the NON-Automatic options. You pull up the account on pay day and submit all the payments you intend to make out that paycheck, then you select that same day as the "Send On" date. This ensures those payments are removed from your balance within seconds of you submitting them and you have no more concern they will clear later causing you issues.

This system has the added benefit of saving you time, which you now know is one of your most valuable assets. It does this by allowing you to pay all your bills from ONE spot rather than signing into many different websites or making several phone calls. It saves you money if it's free because any postage is paid for by the bank, usually.

Also, check with your bank on this, most of these services also allow payments to be sent to companies that are NOT in the banks database. The company receiving the payment wouldn't need to know about, allow, or otherwise participate in the service to get paid. In those cases the bill payment service would simply cut a check and mail it to the company or individual in question. You can even send out your birthday checks through this method. This should be true at most banks.

Create a System
Another thing I advise it create a system that works for you. The more thought you put in ahead of time to this, the less you have to think throughout the month/year. Here's my version adapt this to fit what you want out of it.

  1. Get a sheet of paper (use Excel if you know how) and create a list on the right side of every company that you pay. Most people get paid every two weeks or twice a month. List the bills in terms of 1st paycheck and 2nd paycheck. Also include for your reference the average due date/amount. Even if this changes put something approximate here. Leave room between the two groups to account for any changes throughout the year, switching phone companies for example.
  2. To the right of this create columns up and down the page for January through December. This should create a grid and one box for each month for each payee/bill. 
  3. Now simply write in the date and amount for each payment you make in the corresponding box for that payee/bill and that month. 
    1. If you must carry over a bill you usually pay with one check to the next check, simply leave that box blank and write in the amount/date when you DO pay it. 
To make this system really shine, you should always pay bills as groups on your pay dates. Never again chase your money all over your month by paying bills as they come in or as they come due. Pay them as you get paid, in groups. If you pay bills more than twice a month you are working too hard, and you are creating more room for errors, mistakes, and forgetfulness.
*I'd say that even if you get paid weekly you should still keep paying bills to a twice a month activity, however if you'd prefer to pay them weekly since you get paid weekly, simply adapt the sheet into four groups instead of two or just have one big list.

  • Overdraft Prevention

    We've talked about ways to keep your balances in check. Let's discuss in more detail this idea of a register and balancing. #1 Spend LESS than you put in! Let's do some basic math.

    If you put $1 into your account. You spend that $1 but forget to record it in your book/register. You spend the $1 again because you think you still have it and online banking shows you have $1. How much did you spend?

    Answer: If you said $2 you are right. But, you only put in $1. So when those items do finally come through and get processed how much do you have left? $-1. You are overdrawn. But this is the point that most people call the bank confused and ask how they could be overdrawn when "...the bank balance said I had $1 before I went to make the purchase..." This is is how most overdrafts occur.

    Let's talk about Debit Card Overdraft Service V Overdraft Protection. Banks may have different names for these, but these are the most common names I found consistently as I read most of the large banks literature packets.The names aren't as important as the concepts.

    Overdraft Protection, at most banks but not all, usually means that if you become overdrawn (negative) they will pull money from another account to cover it. This can come from a savings account or credit card or line of credit of some kind. Most banks charge a fee to transfer the money for you, but it's cheaper than paying overdraft fees.

    The Debit Card Overdraft Service, as most banks call it, is totally different and separate from Overdraft Protection.  This refers to how the bank processes your debit card purchase.

    The 2010 Dodd Frank Act states that the bank must, by default, decline your card if there is not enough money for the purchase. There is no fee allowed for this. So you would have no fee, you just wouldn't get what you try to buy. IF, due to the balance issues discussed earlier there are funds showing that the bank doesn't know you spent, and therefore they allow you to "double spend" your money they are not allowed, by law, to charge you overdraft fees for those either when it all washes out and you end up overdrawn.

    So the banks quickly created the Debit Card Overdraft Service. With this service you can volunteer for the bank to allow your card to make the purchase anyway so that you don't get declined. In exchange, though, the bank charges you all the normal overdraft fees for card purchases. You think you're just going to pay one fee. But if items you forgot about start posting negative as a result of all this you'll pay a fee for each one. This could end up being $100's of dollars, per day, in Overdraft Fees, all because you couldn't wait an extra few days for that taco bell. Really it's because you didn't plan your finances out better and budget savings into your money planning.

    Some banks are very clear on this and explain it in detail to you before you are allowed to sign up for it. Some banks encourage their bankers to basically lie to you, half explain it, give you a paper you never read, and then a year later you call wondering how you're paying so many overdraft fees. If you're bank does this to you report them to the Office of the Comptroller. They deserve to be reprimanded. It's more common for the banks to take advantage of you than do it right, so educate yourself on this service before signing up.

    Preventing Overdrafts
     If you keep the Debit Card Overdraft Service turned OFF, use only cash or PIN based card purchases, use Online Bill Payment services for 100% of your bills, and keep a record. You will erase 99.99% of all the possible overdrafts you could run into.

    The only exceptions will be those times you feel that you MUST use the credit/checkcard function of your card. These are usually at stores that don't take Debit/PIN or with services that require a card that Online Bill Payment can't cover. These are usually things like Netflix, Hulu, LA Fitness, Etc. However if you only have one or two of these and you're doing everything else as stated above, they should be more than easy to keep track of and plan for. Or you could use a credit card or prepaid debit card or gift card to run those payments through instead.

    •  Cash Living

      Another alternative to all of this is cash living. Truly cashing your checks may cost less than living with overdraft fees. It may even be nessesary to pull out of the banking system for a season and live on a cash only basis in order to take control of you finances and then re-enter the banking system gradually again once it's under control.

      The Envelope System is a popular way to budget and plan. You take out all your cash and divide it into categories. Although it predates any of us, this method has been made popular in recent years by Dave Ramsey through his book "Total Money Makeover". The idea is that you have one envelope for gasoline, another for groceries, another for fast food, another for bills (even separate the bills into their own envelope if you'd like). This way you plan ahead of time what you are going to spend on each thing. If you are going to spend more you are forced to decide what activity you will spend less on to make up for it. For some people this can be the difference between failure and success. It really teaches you a lot about where you're money goes. I suggest everyone try it at least once.

      I tend to spend cash faster than money in my account. Maybe it's just my personality. So the cash system didn't work for me long term. However a 21st century version of it is the Multi Account Approach. This could be set up as many ways as you have imagination for it and money to spend on monthly service fees for multiple accounts. At one time I had ten checking accounts going, that was too many I got carried away. If your big box bank charges for having multiple accounts, keep your main direct deposit going there and then use USAA, or one of the other online banks as the other accounts. There are banks that still have free-no-strings accounts, there are just fewer of them. This is my "electronic envelope system".

      Here are some ways you could do this.
      • Bills Account: All direct deposits come in to this account. All bills are budgeted and paid from this account, including Netflix, Hulu, LA Fitness, etc. This way you can plan for those and keep money in her for them if you must use your checking to pay them. 
      • Spending Account: Decide up front, on payday, how much you are allowed to spend on Gas, Groceries, Taco Bell, etc. All card purchases come from this account. This means no purchases should ever be made using your Bills Card (that's only for bills like Netflix). This also means that nothing but purchases is done with this card. So Netflix and other things should not be done using the Spending Card. Make SURE the Debit Card Overdraft Service is turned OFF! "Decline My Card if the money is not there!"
      With this two account approach you can't overdraw the bills account because you can't accidentally spend money at Taco Bell that was meant for the electric bill and you can't overdraw the spending account because the card is declined if the money is not there! Genius! I wish it was my idea, it wasn't, but I've used it and taught for many years now. It works even better if you combine this with using the worksheet grid for bills, paying them as groups, using Online Bill Payment Services and all the other things we talked about.

      Other accounts you can use for more separating of funds.
      • Tithe and Offering account, track all funds for charity, tithe, offering, and tax deductible gifts separate from all other spending. Get the tithe out of the main account immediately so that you can't accidentally spend it. Build up offering money as well to use for special offerings as they come. Wouldn't it be great when there is a surprise offering and guest speaker at your church if you prepared AHEAD OF TIME to give to them?
      • Allowance. Spending Account is ONLY used for budget items like Gas and Groceries and this is the one you use for Misc Taco Bell or impulse buys. You keep very little in here, only what you budget for impulse buys. Puts a cap on this issue if you have it. 
      • Kids. You set aside a certain amount each paycheck for trips to check-e-cheese, parks, museum, etc. This card is used for them and only them. You always have their time planned and budgeted and you don't have to deprive them because you spend too much.
      • Christmas Savings. Stop using the credit card during holidays. Decide in Jan 2013 what you will spend for Christmas shopping in November/December 2013. Break that down by 11 months and transfer it to a savings monthly. Instead of making payments on you credit card to pay off last years spending, make payments into a savings to pay off NEXT years spending. 
      • Car Savings. Instead of  getting a car and making payment for five years, essentially paying $35,000 for a $20,000 car that looses value daily; drive a hoopty, and make payments to your Car Savings for 3-5 years and pay $15,000 (cash discounted price) for the $20,000 when you walk in with cash! Without paying interest you can save $20,000 faster than it takes you to pay off a $20,000 loan with interest. IF interest rates are high enough you could even get paid interest while you're saving making it that much faster.
      You get the idea, you could go on an on with things you COULD do. Find out what system will work for you and implement it.

      Have questions about anything I said here? Want to share your story? Comment Below!

      I call you empowered 2 prosper with good success!

      N2 Good SuccessDarrell G. Wolfe

      See Also:
      Books by Darrell G. Wolfe: 
      Book Suggestions from the N2 Good Success Amazon Store
      Brand and Product Offerings from N2 Good Success Zazzle Store



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