October 27, 2010, 5:00 am

New Ways To Manage Expenses and Credit

by: The Financial Blogger    Category: Personal Finance
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A good number of us cannot keep track of our expenses effectively. A greater number run out of money and rely on credit then subsequently get into debt. One reason is that an emergency fund was not effectively put into place. Another reason is that overspending is a prevalent issue in the debtor’s life. And still another reason could be disasters that happen along the way: unfortunate events, things breaking down, environmental calamities, investments losing money with market crashes, etc. Either way, there are a million possibilities in which you may need provision ASAP, and while emergency funds are an imperative, there are other options that may also work for you.

While this option won’t likely work with the major store chains, this could potentially work with mom and pop stores and smaller enterprises. It’s actually a pretty common arrangement between customer and merchant in many other countries around the world (particularly Asia). This bright idea is to pay the store a certain amount in advance for goods you would consume in times when you are pretty low on cash. The idea is to have a “debit line” in a store, for a certain amount that you pay them in advance. Much like a debit account, indeed. You can always use cash of course, and doing this sort of thing will prevent you from earning any interest on your savings, but it’s an arrangement that’s still in practice in certain communities.

This could work if you know a store’s owner. This could also work in smaller towns or in communities where everyone knows everyone else. There are two ways to use debit:

  1. Talk to a store owner, preferably a grocery store, dry goods store, or deli owner, and ask if you could deposit, say $100 or $200 in advance, and then when you need it, you can come over and gradually consume that amount. It sounds like an odd set up and is an old-fashioned way to transact with a store that you frequent. It’s probably more common in areas where the idea of using plastic or extending formal credit isn’t as widely accepted.
  2. Get a prepaid Visa or Mastercard. This is the typical way we see ourselves using credit or debit. If you’re thinking of picking up this type of card, why not get a cash back debit card to also get rewards? Store a certain amount in it: $20, $100, $200, $500, $1000 — it’s up to you, and then only use it when you need to. It’s one option you can use instead of banking on cash for your expenses.

These measures are for the incorrigibly spendthrift. Teens and young adults who have yet to grow out of the consumerist and financially dependent lifestyle could use measures like these to help control or manage their outflow. Parents should not do this for them; rather, they should be encouraged to do this for themselves. If you’re a parent of a teen who loves to spend, spend, spend, then let your child know that as much as possible, you won’t be there for him or her if they burn their allowance to ashes before you hand them their next installment. Thus, they should learn how to set aside a bit of their money.

You may want to think twice about the decision to start a child with those credit cards for college students if they tend to use plastic too liberally. A debit card can put a limit on your child’s spending while a secured credit card may be useful for them to build credit while also controlling the amount of credit that’s extended to them. If you’re going to introduce the use of credit to your kids, make sure they are aware of the consequences of falling into debt. Teach them to only use cards if they know how to pay off their balance in full each month.

Now regarding the “store credit” strategy where you ask a merchant to extend you credit based on some amount of money you give them in advance: should you want to use this method, don’t ever forget to get receipts or anything that resembles a certificate, in writing, that you have left money with that establishment. Again, it may make much better sense to keep your funds in a traditional emergency fund, but the “store credit” approach may work for those who find it a challenge to trust themselves with their money.

Some of these measures sound quirky, odd and so old school. But if worse comes to worst, extreme measures may be required. Some people may actually find that some of these unusual suggestions for managing credit could work for them, especially if they are truly finding it hard to save and even manage cash on their own.

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I didn’t think about using prepaid cards. Do you recommend having multiple prepaid cards for particular expenses? Then again, that could get a little out of hand…

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