By Marshall Loeb, MarketWatch
RISMEDIA, Sept. 28, 2007-(MarketWatch)-Whether you’re a financial newbie or just a late bloomer, columnist Liz Pulliam Weston’s five laws of basic money management pay off:
1. Have your paycheck automatically deposited. Why would you bother getting a check in the mail when you can circumvent the paper trail altogether? Holding the check in hand still gives some of us a sense of security, says Weston — but it’s a false sense of security. A paper check may seem less ephemeral but that’s an illusion. If you happen to misplace your paycheck, it’s likely to take you at least a week to get a duplicate. With direct deposit, you never run into this problem.
2. Take advantage of automatic bill paying. If you’ve avoided signing up for it because of an aversion to technology, get over it, urges Weston. Even the most conscientious money managers are likely to miss a payment now and again. Once upon a time, this wasn’t a huge problem, because banks and other lenders were more lenient, offering grace periods and extensions. But times have changed and the fees and penalties for late payments have soared. Even worse, one missed payment can lower a good credit rating by as much as 100 points, warns Weston. With automatic debit, your bills are guaranteed to be paid on time as long as you have enough money in your account.
3. Track your accounts online. If you’re on a tight budget and covering your bills requires carefully managing your cash flow, it’s time to trade in your checkbook for an online bank account. It will allow you to access your financial information 24 hours a day. In a matter of minutes, you can get an accurate account balance by checking to see which debits have gone through and which are still pending. This will help you avoid bloated overdraft fees. Hint: When you have several payments pending, be aware that many banks now put your largest check through first. Why? Because they stand to make money on overdraft fees if you’re remaining balance doesn’t cover the smaller checks.
4. Pad your checking account. Worried about exceeding your limit? Commit to building a realistic safety net. Experts have long cautioned people to save at least three months worth of salary in case of calamity. But let’s face it: that’s just not an option for some us. Instead, try to cushion your bank account just enough to avoid late payments and bounced checks. Weston advises starting out by making $100 of the money in your checking account off limits. This is money you don’t spend no matter what, so always remember to subtract it from your available balance before you go on a spending spree!
5. Customize due dates. For many of us, cash flow varies depending on the time of the month. If you’re having trouble paying bills that come due long after payday, you may want to consider customizing your due date.
“Most major lenders will work with you to find a due date that’s reasonable for you,” says Weston. Renegotiating your due date can help you keep a handle on your finances and limit fees.
Marshall Loeb, former editor of Fortune, Money, and the Columbia Journalism Review, writes for MarketWatch.