Money Management Skills: Part One

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The first of five important money management skills for people with disabilities helps you understand different forms of money and basic budgeting tips.

Self-sufficient adults need money management skills. These articles are about the very basics of money management, and would apply to anyone including young people who are just beginning to be responsible for themselves, someone who is new to the United States currency and working within our banking system, or someone who has not had to manage on a fixed income before, such as those receiving social security disability benefits.

You may have a firm grasp of these skills already. Becoming disabled later in life requires acceptance of many changes, including a change in mindset and in your financial plans going forward. Money may now need to be allocated for making adjustments to your home, and budgeting needs to include medications and regular doctor visits or treatments. It is important to incorporate these changes into your ongoing budgeting plans and to acquire sound financial habits for your future.

Financial wellness is a hot topic that includes not only understanding how to manage money but also how to make wise financial decisions that can improve your overall well- being. Your disability benefit, just like other types of money, checks, or payments comes with little guidance on how best to manage it. Figuring out how to maximize this benefit in your life requires information and skills. Whether you have handled finances for yourself or your family for years or have recently taken charge of your money, here is a quick overview of basic money management to guide your habits, actions, and choices.

Skill # 1:  Understanding Forms of Money
Cash is probably the easiest form of money to recognize or spend.  If you are relatively new to the United States, or are new to handling money, you should know that our legal currency includes $1, $2, $5, $10, $20, $50 and $100 bills and the 1¢, 5¢, 25¢, 50¢, and one-dollar coins.  You probably haven’t seen the $2 bill or fifty cents and dollar coins as often but they are still circulating as legal tender.  Of course, any amount of money can be written in the form of a check to be deposited as money in your bank account or cashed for bills and coins.  And any amount of money (cash, checks, or payments) can also be deposited in a bank account either in person, at an ATM or electronically.  Some people have gold or silver coins that are worth a certain amount (that can vary daily) and considered legal tender (in some states) but these coins must be exchanged for currency in order to be used for purchases.

While not considered cash, other items that may be used for purchases or exchange include:

Money Orders (available at various businesses, banks, the post office or check cashing establishments),

Certified Checks (signed by you but the bank certifies that you have the money in an account to cover the check),

Cashier’s Checks (issued directly from the bank and considered more secure than a certified check),

Traveler’s Checks (most often used as a safe alternative to cash or credit cards when traveling outside the US but can also be used in the US),

Make sure you understand the circumstances of use for each type of card.  For example, Credit Cards, debit cards, store-credit cards, and gift cards.  There are also cards that appear to be credit card (with logos from VISA, American Express, and MasterCard) that you load by using cash. Minus a small activation fee, these cards can then be used as debit cards up to the amount of cash you put in.

Debit cards immediately remove the amount from your bank account while credit cards extend the payment until the monthly due date and charge interest if the amount is not paid in full.

Store-credit and gift cards usually have rules regarding their usage. If you are unsure, ask at the store if you can receive change in cash from a purchase if it is less than the total amount on the card or if the amount left remains on the card for future purchases.

Electronic transfers of money are used extensively now through such systems as ACH (Automated Clearing House) and EFT (Electronic Funds Transfer). Both terms can be used interchangeably and refer to a transfer of funds from one bank account to another electronically.  For example, with credit and debit cards banks verify payment through these systems at the point of purchase. As of March 2013, all SSDI checks are deposited electronically.

ACH/EFT can also be used for electronic deposits, direct debits or deductions, as well as direct deposits.  For example, you may set up to have one or more of your regularly-scheduled monthly bills automatically deducted from your account and sent to the vendor through an ACH/EFT.  These systems can also be used to transfer money from your bank account to purchase items on a debit or credit card set it up in advance with a specific vendor (such as Amazon) to use for each transaction. There are also specific payment systems you can use so that you don’t have to set up a unique account with every online vendor.  PayPal and Google Wallet are examples of this.

Confused about keeping all of these forms of money straight? Even if you receive your benefit check electronically, some people only feel comfortable using cash or a combination of checks and cash to keep track of daily purchases or paying bills.  Your level of comfort in using the various alternative forms of money listed here should be tied to your understanding of the risks, benefits, and even costs associated with each them.

Skill # 2:  Setting a Budget for Spending and Saving
Here is the one skill related to money management that can make or break individual or family finances: Budgeting.  When people don’t know where all their money goes or are upset that they don’t have enough money to take care of their obligations, the fault often lies in ignoring the budget process, which includes spending and saving.

There is probably more information on the Internet and in finance books about creating a budget than any other money-related topic.  Simply put, a budget is a record of money coming in and money spent. You can create a budget for each month, each week, each day or even over a year or longer. The purpose of a budget is to give you peace of mind that you have money to pay for what you need. When a budget works, you can feel more secure in knowing that you can take care of yourself and plan for the future instead of worrying constantly about finances.

First, you have to have an accurate picture of the money you have and how you spend it. Here are two simple ways that might work for you if you are new to budgeting or if your current plan is not working.

  1. Keep a daily log by writing down every item you purchase and any bills that are paid by cash, check, or electronic transfer. Most people are surprised after they collect this information for a few weeks or months. You can estimate what you spend on food, for example, by keeping track of grocery receipts.  But once you write down each trip to a coffee shop or every pizza delivery, you begin to get a better idea of what you spend on food and drink.  The longer you keep a log, the better you can understand and anticipate upcoming expenses.  For example, in two weeks or even a month, you may not spend money on clothing.  But at some point you or someone in your family may need new shoes or a jacket that you have to buy. For one month it might look like you don’t need to budget much for clothing but over time, you will. The same thing can happen to utility bills that can fluctuate wildly depending on the weather or car expenses that can ruin your carefully planned budget if you get a flat tire or need a repair.  A simple daily log can be valuable information in figuring out what expenses you can expect, bearing in mind that unplanned expenses or emergencies can always be on the horizon.
  1. Set up a monthly budget that you plan to follow. This means writing down all anticipated expenses, either the exact amounts or estimates into categories such as rent, utilities, food, personal care, health care, transportation, recreation, and others. For some categories, such as rent, you know exactly what the amount is.  For others, you can estimate an amount, either based on analysis of your daily log or past experience.   Keep in mind that on average, housing is 25-35% of your total, with 10-15% for each of the categories of utilities, food, personal care, and transportation.

Of course, your percentages may vary greatly depending on your personal needs in each of these categories.  Your health care needs may also be a bigger expense than most people although there are several programs available in communities and states to help with costs related to your health and disability.  Review the monthly budget amounts you have written down next to each category and under the figure put the exact amount spent in that category until the end of the month.  At the end of the month, review how close your estimates came to covering your expenses. Make adjustments for amounts budgeted for the upcoming month and repeat the review for at least two month.

Did you notice that Skill # 2 is Setting a Budget for Spending and Saving? The easy part is coming up with what you are spending.  Sometimes you might feel you have little control over what you have to spend for something, such as housing or your monthly transportation costs—or do you?  Here is where you can really get creative by learning how to spend less and save more.  If you’re thinking that is impossible in your situation, maybe these three stories can change your mind.

Janis in Illinois
I used to spend whatever money I had each month until it ran out.  I soon learned that I had to do something because I was running out sooner than I had planned.  So I turned into what some people might call an extreme budgeter–and that is fine with me. Each week, I try to make it a personal challenge to find ways to cut my expenses. My favorite ways are in the food category. Since November, I have been able to cut my food bill by 10% each month.  I started by setting up a monthly menu, including breakfasts, lunches, dinners, and snacks. Yes, that took some time. But once I had the menus set, I knew exactly what to buy at the store instead of guessing what I might want to eat once I was in front of all the temptations at the grocery store. This one little tip made it possible for me to buy items like beans, rice, pasta, cheese, and eggs in bulk and use up things before they were spoiled and no one would eat them. Have there been days when I wasn’t thrilled with my menu choices? Oh yeah! But I am getting better at it each month and enjoying the entire process more.  I’m very proud of all the money I have cut from my food spending without starving my family.

Manny in Florida
My utility bills were getting out of sight–especially during the hot summers here in Miami.  So I decided to do two things: First, I told my kids we were going to play detective and try to spot places where the air conditioning was leaking outside and extra heat was coming through to the inside.  We used weather stripping to cover some of the holes and spaces around doors and windows and pulled the blinds shut in rooms that were flooded with light (and heat) during the day as much as possible. The best part about this was that everyone became more interested in “keeping out the heat”– not just me.  Next, we started adjusting the temperature to make it a little bit warmer, a little less air-conditioned in the house–one degree at a time.  We found out that we could easily tolerate our house being several degrees warmer than we thought we could, even at night. After six months, we had saved more than $200 on our utility bill that really helped our budget.

Ross in Colorado
I had always had my own place to live since I left school twenty years ago. But after hurting my back disabled me, I could no longer keep my job or keep up my large apartment.  So I talked to everyone in my family and found that one of my aunts was willing to let me come and live with her to help share expenses.  I thought it would drive me crazy to have another person in the house with me at all times, but it has worked out surprisingly well.  We respect each other’s privacy and have actually shared some fun times eating together and watching movies together on TV.  I would never have imagined myself living with one of my relatives but when circumstances change, you have to be flexible and open-minded.  This arrangement wouldn’t work for everybody but we have found a way to make it work for both of us.

These people and millions more have found ways to cut expenses and save money.  Stories of people finding unique ways to stick to or reduce their spending can be found on the Internet, in your neighborhood, or even in your own circle of friends and family.  Don’t be afraid to bring up the topic so you can share your own ideas and learn from others.  You are in the majority of Americans if you are watching your expenses and trying to find ways to spend less and save more.

And keep reading because in Part Two of Money Management Skills we are going to tackle additional areas of personal finance that can help you make the most of your benefits.

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