Money

Some Counterintuitive Approaches to Money Management

Nowadays, there are still many people who have never gained any formal training in money management and do not have a professional in the wings able to give advice. Unsurprisingly, nearly 3 out of every 4 Americans say they could benefit from a little help, but think they have a good handle on their finances. But, as it turns out, not all financial management services are easily accessible. Some, including some of these solutions below, even go against the grain.

Sometimes Discounts Cost You More

Sometimes a discount is a direct cost savings to you, where other times it's simply a small reprieve on a product that's still pricey to begin with. To manage your finances properly, you must set a budget or a reasonably accurate estimation of your everyday expenses. In the business world, we would call these operating expenses, or the costs associated with day-to-day activities.

Let’s use tires as an example. You need to change the tires on your vehicle periodically. This is not an optional expense, so a discount would be a net cost savings when you compare your budget to the actual costs. A new piece of jewelry is optional, so it should not show as an operating expense.

Pay Yourself First

It's human nature to spend whatever money we have. This is why for many individuals and families, at the end of the month, there is nothing left and it seems impossible to increase your savings account. To fix this, make the first line of your budget your contribution to your savings account, and pay this “bill” first every month. By saving money this way, you are creating the ability to use what behavioral economist Keith Chen calls a futureless language of savings.

Chen noted that in countries where the language does not distinguish between past, present and future tense, the populace is able to save more money. When it comes to money, Chen suggests removing "future" our vocabulary when it comes to money and only addressing the present. In other words, “I save now."

Save Before You Pay Down

Another counterintuitive approach to saving has to do with priorities. If a person has $100 left with the option of paying down a high-interest credit card or depositing that money into a low-interest saving account, most would choose paying the credit card bill. According to University of South Florida professor Lissa Coffey, the savings account would be the wiser choice. By placing money into savings, you will be creating a buffer between you and any unexpected debt. Having cash available when we need it most tends to provide us discounts, as well as a reduction in fees and interest rates.

Find a Different Tax Preparer

Money management and taxes go hand in hand. Research shows your tax professional's attitude will affect any risk-taking behavior you might have. There is, however, an interesting permutation factor to this research.

If the tax preparer and their client are both very aggressive, then there is a greater risk of breaking compliance rules and violating laws. If both are passive, then the client may not get the highest returns. So, if you're playing score at home, passive clients need aggressive tax preparers and aggressive clients need passive preparers.

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