Most of us use credit cards to buy groceries, gas, pay bills, etc.  Using your credit card makes it easy to track expenses for your budget, but are you managing your credit cards effectively?

So, I have a couple of questions for you.  How many credit cards are in your wallet?  How many credit cards do you really use?  It is easier to track your expenses if you use only a couple of credit cards.   It is also safer if you only carry a couple of cards.

Once a year you should review your cards and determine which ones you use most often.  Is it the one with the best rewards?  Is it the one with the highest credit limit?  Is it the one with the lowest interest rate?

Many of you use a rewards card and many of you use a cash back reward card.  Many of the cash back rewards are capped on an annual basis.  Make sure you are using the card effectively.

Anya Kamenetz wrote an interesting article in  the Chicago Tribune titled “Playing the cash-back credit card game”.

Her suggestions follow:

1. Don’t pay extra for a cash-back card
2. Consider Chase Freedom, American Express Blue Cash Everyday, Capital One Cash Rewards and Discover It Card
3. Don’t apply for too many cards – credit score issues
4. Consider your monthly spending habits before choosing a card
5. People are most satisfied with gas reward cards.

Nerd Wallet is a good resource for researching your credit cards.

Comment:  If you are enjoying this blog, please share it with your friends.

Another MoneyYOYO rule – pay your loan payments on time and in the amount expected.  Being late on loan payments can seriously deteriorate your credit standing.

If you are not comfortable with your debt level on your balance sheet you can make additional loan payments and pay off your loans more quickly.  This means you will have to spend less to afford these additional debt repayments.

What loan do you pay off first?

There are a number of ways that you can approach debt repayment.  The optimal strategy is to pay down the loan with the highest interest rate.  Once that loan is paid off you then pay off the loan with the next highest interest rate.

Depending on how large your loans are, this could take a long time.  Many people like to see more visible progress.

So some people prefer a strategy where you pay off the smallest loan balance.  Then you pay down the next smallest loan.  This strategy gives you a sense of achievement since you are paying off loans and they go away.  Read related articles at these sites:   gkarp@tribune.com, @spendingsmart.

Others use a combination strategy where you pay off the smallest loan and then begin additional payments on the loan with the highest interest rate.

There is no right answer.  The best strategy is the one that gets you to make additional loan payments and meet your goal for debt reduction.

Financial aid:  Use the app Tab to help you split the bill when you’re dining out with friends.

Photo of the day:  My dog, Charlie keeps me focused on cold, windy days.

 

I have written about income, expenses and building savings, but I also need to address the issue of assets, debt and net worth.

You should create a simple balance sheet.  List all your major assets on one side and list all your debts on the other side.  If your assets exceed your debt then you have positive net worth.  If your debts exceed your assets, you have balance sheet problems.

Debt is a personal obligation – remember YOYO – you’re on your own.  How are you going to get your debt level to a manageable level?  It is not something you can achieve in a short time, so back to a YOYO rule – start with small goals.  What can you do this year to help you achieve your debt reduction goals?

A few rules of thumb to help you review your list of debts:

* Your car loan should not exceed 10% of your take home pay

* Your student loans should not exceed what you expect to earn during your first year after getting your degree

* You should be able to pay off your student loans within ten years

Many financial plans include the following three goals:  build savings, reduce debt and invest for the future.  The next few posts will focus on managing your debt.

Financial fact:  As of 2012 43% of 25 year olds have student loans with an average loan balance of $20,326.  Over half of all student debt is held by households whose net worth is under $8,500.  (Bloomberg BusinessWeek, Correlations – Student Debt Explodes, Evan Applegate)

Comment:  I’m blogging in Chicago, so here is a view of the city from North Pond in Lincoln Park.

 

Remember the name of this blog – MoneyYOYO.  You’re on your own.  No one else if going to save money for you.  No one else is going to create a budget or track your spending.

So make sure your goals are clear.  Does your budget include the appropriate amount of spending that allows you to pay down debt and meet your savings goal?  Remember savings involves both large and small sacrifices.

You should track expenses at least once a quarter.  Some people like to review expenses each month.  Once a year is definitely not often enough.  You need to make time to track your spending against your budget.

If you are considering a major expenditure during the year that is not in your budget, review your budget again.  Does this additional spending match up with your goals?

If you are overspending, you will need to figure out a way to adapt your spending to get back on budget.  Some level of sacrifice will be needed.

Financial fact:  In the scramble to get through airport security, U.S. travelers left behind $531,395 worth of pocket change in those plastic tubs in 2012. (Bloomberg BusinessWeek, Justin Bachman)

Comment:  Both Mint.com and Learnvest.com have apps that might help.

Remember the rule – start with small goals.  What changes can you make to your budget now and what changes can you make next year?

Let’s start with housing.  A rule of thumb for housing is no more than 30% of your taxable income should go toward housing. Obviously where you live and the cost of living in that city determine that number.  If you live in New York City that percentage will be higher.  If you live in a smaller city it could be less.  It is usually your largest bucket of spending.

You have a lease or a mortgage, so housing costs can’t be changed immediately.  But if you are uncomfortable with what you are spending, investigate how you can reduce your housing expenditure.  Is it as simple as finding a way to reduce your utility expenditures or taking in a roommate or do you need to totally downsize your living arrangement?

Is where you live very important to you or is it a place to sleep and store your stuff or somewhere in the middle?  These questions may help you decide if your housing choice is appropriate for your lifestyle and your budget.

Financial fact:  In 2011, 28% of renters paid more than half of their incomes for housing.  Rising rents and falling incomes are causes. (Bloomberg Businessweek – “Harvard Study Finds:  The Rent is Way Too High”, Peter Coy, December 9, 2013)

Financial fact:  U.S. stocks measured by DJIA were up 27% in 2013.  The S&P 500 was up 30% and Russell 2000 was up 39.5% in 2013.  (WSJ Dec. 31, 2013)