Credit cards can be a great asset if used properly, but they can also leave you in financial issues fast. Many people have credit card debt and don’t even realize it. Here’s how you can review your credit card bills to unearth opportunities for improving your finances.
- How I Checked My System In The Early Days
- How I Check My System Now
- Things To Remember For Freelancers
- Action Steps
- I Love This System For Three Reasons
- When Do I Get To Spend My Money?
How I Checked My System In The Early Days
I used to do a weekly five-minute review of all the charges on my card. If I took no action, my credit card reached into my checking account once a month and paid the full amount automatically. No late fees, no worries. If I did see an error, I just called my credit card company and got it fixed.
Let’s talk about those weekly reviews for a second. I liked to keep an eye on my credit card charges whenever there was tipping involved, so I would keep my receipts whenever I went to restaurants and store them in a paper folder on my desk. Every Sunday night, I’d check the folder and spend about five minutes comparing my receipts with what my credit card’s website says. I’d just do a “Ctrl + F” for the amount (for example, $43.35) and confirm that it’s correct. If I wrote $43.35 as the full amount after tip, but saw that the restaurant had charged me $50, I knew someone was trying to make a quick buck off me. And in that case, you need to ask yourself one question: WWAID? (What would an Indian do?)
Answer: A quick call to the credit card company will resolve this.
How I Check My System Now
I don’t do those weekly reviews to catch a $6 added tip anymore. The more experienced you get, the more you can spot unusual deviations to your own spending—and even if someone adds $6 to a tip, it doesn’t matter.
Believe me, I know how weird that sounds. I built this system by being ultra-aware of every transaction that ran through it. But eventually you realize the system exists to help you focus on the big picture. In any meaningful system, there’s always a certain amount of waste. If someone adds $5 to my tip (and my credit card company doesn’t catch it), that’s life.
I’ve set up a system with the appropriate safeguards and reviews, but I know that there will inevitably be certain things that slip through the cracks. That’s okay as long as I’m keeping my eye on the big picture.
I automated my finances, and over seven years I have saved around $400,000. I also earned enough to max out my retirement accounts.—DAN SHULTZ, 35
Things To Remember For Freelancers
As a freelancer, you’re responsible for your self-employment tax, which your employer would normally handle if you were a traditional employee. Self-employed taxes can get very tricky very quickly, so I’m going to give you my rule of thumb, then encourage you to talk to a professional.
Since many freelancers don’t know the rules around self-employed taxes, they can get surprised when tax time comes around. I’ve known a lot of freelancers who were stunned to owe unexpectedly large amounts for taxes. As a rule of thumb, you should set aside 40 percent of your income for taxes. Some people save 30 percent, but I prefer to be conservative: It’s better to end up oversaving than owing money at the end of the year.
Your bookkeeper can advise you on exactly how much to set aside, and how to automate your quarterly payments, so see a professional. It’s worth it. I also recommend using You Need a Budget as a planning tool if you have an irregular income.
1. List all your accounts in one place (one hour)
As you start linking accounts to one another, you’ll need to log in to all of them. Make your life easier by getting all the login information in one place that you can access from home and work.
2. Link your accounts together (three to five days)
To set up your Automatic Money Flow, link your accounts together. Connecting them is free and quick, but allow three to five days for the accounts to verify the links.
3. Set up your Automatic Money Flow (five hours)
Once your accounts are linked together, set up the core of your Automatic Money Flow: automatic payments. Your system will automatically send money to your investing accounts, your savings account, and your fixed costs, and leave you money for guilt-free spending. Remember, you’ll want to reset your billing cycles so you can create a well-timed Automatic Money Flow.
Your Money Is Now Automatic
Congratulations! Your money management is now on autopilot. Not only are your bills paid automatically and on time, but you’re actually saving and investing money each month. The beauty of this system is that it works without your involvement and it’s flexible enough to add or remove accounts anytime. You’re accumulating money by default.
I Love This System For Three Reasons:
1.) Your automated money flow takes advantage of human psychology. Right now, you’re motivated to manage your money. Imagine life in three months— or three years. You’ll get busy, distracted, and focused on other things. That’s normal. But your system will continue growing your money for you. This system has worked for hundreds of thousands of people, and it will work for you too.
2.) Your system will grow with you. You can contribute $100/month and your system will just work. Now imagine getting a series of raises, and consistent returns from your investments, and other unexpected income (such as a tax refund). In fact, imagine you’re contributing $10,000 per month—or even $50,000 per month! Your system will still work beautifully.
3.) Your system lets you go from “hot” to “cool.” One thing I love about this system is it takes you out of the day-to-day, emotionally “hot” decisions and lets you focus on longer-term, “cool” ones. For example, think about the way most people describe their daily purchases: They “struggle” to “resist” dessert, or they feel “guilty” about buying coffee, or they admit to being “bad” if they splurge for a nice handbag.
I hate those words. Money should be about all the good things it can do, not the bad. To do that, you can’t agonize over thousands of micro-decisions per month—you have to focus on the bigger picture.
When Do I Get To Spend My Money?
Now that you’ve got your automatic infrastructure set up, each month, you’ve got money flowing automatically to your investing accounts and savings accounts. You’ve even cut your spending by focusing on a couple of Big Wins. So when do you get to spend all this money?
What a great question. The only people who’ve ever asked me this are actually concerned about saving too much.
The answer is simple: Once you’ve gotten your money under control and you’re hitting your targets, you absolutely should spend your leftover money. Look to your savings goals. If you don’t have something in there for “vacation” or “new snowboard,” maybe you should. Otherwise, what is all this money for?
Money exists for a reason—to let you do what you want to do. Yes, it’s true, every dollar you spend now would be worth more later. But living only for tomorrow is no way to live. Consider one investment that most people overlook: yourself. Think about traveling—how much will that be worth to you later? Or attending that conference that will expose you to the top people in your field? My friend Paul has a specific “networking budget” that he uses to travel to meet interesting people each year. If you invest in yourself, the potential return is limitless.
If you’re meeting your goals, another route you could take is to start saving less and increase the amount you allocate to your guilt-free spending money.
One final thing: I hope this doesn’t sound too cheesy, but one of the best returns I’ve ever gotten has been with philanthropy. Whether it’s your time or your money, I can’t emphasize enough how important it is to give back, be it to your own community or to the global community. Volunteer your time at a local school or youth organization (in NYC, I volunteer through New York Cares) or donate to a charity that supports a cause you care about (I’ve donated to Pencils of Promise [pencilsofpromise.org]).
Saving too much is a good problem to have. Fortunately, there are great solutions too.
This system means you get to bring your vision of a Rich Life alive. I believe that you can tell a lot about your own values by where your money goes. As I always say, “Show me someone’s calendar and their spending, and I’ll show you their priorities.”