Managing Your Money and Using Credit Wisely

The key to successful financial management depends upon realistically understanding and meeting your financial obligations.  If you form good money management skills now, they will benefit you the rest of your life.  There are tools to help you.  Sticking to the budget you have just laid out is the first tool.  You can use your budget to track your actual expenses.  It can be a real eye-opener, revealing things about your spending habits, impulsive purchases, and unexpected needs that were not readily apparent.

The second money management tool is using credit wisely.  In an article entitled  “Using Credit Wisely”  The USAA Education Foundation points out:

“When used properly, credit can be a helpful financial tool...

   On the other hand, using credit for vacations, dining out, holiday gifts, clothing or impulse spending can lead to trouble if you can’t pay the bills within a reasonable amount of time.  With credit, it’s easy to lose track of how much you are spending because you don’t immediately feel the impact.  When you begin carrying balances, you pay interest rates that typically range from 14 percent to 22 percent—charges that quickly add up.

   To avoid these charges, try to pay in cash as often as possible...

  If you like to use charge cards for the convenience of record keeping, track your spending.  One way to do this is to keep your charge receipts together in an envelope with a running total of your purchases on the outside.  If the total exceeds an amount you feel is appropriate, then it’s time to curtail your spending.  There’s an added benefit to this system: when your statement arrives, you can check its accuracy using the receipts you have saved.

   Aside from credit card spending, another common use of credit is automobile purchases.  Financing a vehicle is a perfectly acceptable use of credit, but the shorter the payback period, the better.

   As vehicles have become more expensive, the typical length of car loans has been extended from two or three years to four or five.  

   The longer the payback period, the greater your finance charges.  As a rule, credit terms should provide for loan repayment before the item you are purchasing is likely to need replacing.”

Reprinted with permission from Managing Credit And Debt, a publication of The USAA Educational Foundation, a nonprofit organization, copyright 2002.  For more information on this topic, visit www.usaaedfoundation.org or order this printed booklet by calling toll-free 1-877-570-7743.