September 11, 2007, 7:00 am

Frugal Tips from a Reader: How to manage family finance with one income

by: The Financial Blogger    Category: Frugal
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I recently discussed with Chris, a loyal reader at The Financial Blogger. He was explaining to me how he setup his personal finance in order to be able to live under one income. As I was quite interested to know how he manages his stuff, I asked him more details about it. It’s funny how most of these tips are easy to do and mostly evident but most of us don’t necessarily think about it our daily lives.

 

Don’t increase your lifestyle along with your raises

Next year, I’ll finally buy a new car with my raise. Everybody has goals linked to their next raise. However, if you use your raise to increase your debt payment (think about a debt elimination process) or to invest this money, you will get in a much better financial situation. Just think about the power of compounding interest. In a few years, you will be able to afford whatever you want and there will still be money left. Save now for tomorrow instead of burning your potential next raise up front.

 

Improve your credit score

While improving your credit score makes thing easier to get new credit, it also has other benefits. In fact, insurance companies are now linking your credit score to a risk grid. Studies shows that people with higher Beacon score will more likely be responsible and have less incidents in their life than people with low Beacon Score. Then, you can save upon car, life and house insurance. That will definitely increase your monthly cash flow.

 

Pack lunch for work

While this one is obvious, so many people still eat out for lunch. You can probably pack a lunch for about $3 a day while eating out will cost minimum $10. That $7 a day becomes $1,820 at the end of the year. Think about it.

 

Make big cash down on house and refinance your mortgage to a lower rate and shorter term

Before his wife quit her job, Chris and his wife were using her salary to build up their cash down. When you are about to cancel one income, a good way to see if your plan could work is to put all this money aside for a while. If you never need to take this money out, you are ready to cancel the income.

 

Big cash down will not only make your approval an easy process but will also leads to good lending condition. It is easier for you to finance your house with a better rate and a smaller amortization. These are two ways on saving money along the road.

 

Stick to your budget and use software to track down your expenses

The biggest business killer is the miscellaneous expenses you may have months after months. Plan the unexpected and stick to it. A budget is your best friend to keep money in your pocket. If you are having a hard time to setup your budget, you can use an Excel spreadsheet or software such as Quicken or Microsoft Money. Theses software will help you out determining your expenses and revenues according to a complete category list.

 

 

Keep your car!

Chris says he keeps his cars for a good ten years and never buys them new. In fact, a brand new car will likely loose 50% of its purchase value after three years. If you buy the same car after three years and keep it for ten years, you will save literally a ton of money.

 

Reduce your marginal tax rate

Chris is living in the USA and was able to drop his marginal tax rate from 28% to 2,5%. I’ll come back later on with another post on this topic. However, it would never hurt to meet with an accountant to look at your income report. He might find several ways for you to keep your money away from the government. Make sure to use a reliable accountant that will only lead you to legal ways of saving money.

 

Borrow at low rate

Chris was also able to borrow money at very low rate. When you can have access to promotions that drop interest rate on transfers for a specific time, you can save a lot of money. A debt consolidation could decrease your monthly payment and reduce your interest rate at the same time.

 

As you can see, these tricks are pretty simple and easy to use. However, if you can use all of them to your personal situation, you can only be in a better financial situation in a few years from now. If you have other tricks, please add your thoughts in the comment section.

 

 

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Comments

Eh, FB, francophone? 2 virgule 5 pourcent 🙂

Another piece of software that’s coming along for Financial planning is Wesabe. I’m not a big fan, but some people love it. I know that Mint is working on something similar.

Personally, I’m of the opinion that Quicken and Money are basically overblown in terms of being “cash managers”. The whole “expense tracking” thing can definitely be done inside a web browser, though I’d also like to see a freeware version of a Quicken competitor.

by: The Financial Blogger | September 11th, 2007 (10:15 pm)

Damn! My French roots are betraying me… again! LOL!
Gates, the thing I like about Money is that it creates report as well. I was shocked to find out how much I wasted in restaurant over the past 6 months…Now I try to modify some of my spending habits!

All good suggestions! Another good way to keep track of your money is to eliminate all of your credit cards but one, consolidate all of your bank accounts into one and minimize your investment/retirement accounts as much as possible.

My wife and I keep one credit card for all of our expenses and pay it off 100% each month. That way, we have a very detailed list of expenses for everything we spent. I use it for everything, all the way down to a $.50 cup of coffee in the morning. I don’t use Money or Quicken, just a spreadsheet downloaded from American Express (I have an Amex Blue card).

Living below your means, with no debt, is key!

by: The Financial Blogger | September 12th, 2007 (7:51 am)

Brip Blap,
I like your suggestion about paying your credit card balance every month. With such method, you are sure to never over spend. However, I would suggest you keep 2 or 3 credit cards even if you don’t use the others. These extra credit cards won’t serve to spend more money or to earn points but to improve your credit score. I am preparing a series on how to improve your credit score and the optimal amount of credit cards will be one of the topic.

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