Secrets to managing your money. A sure fire way to sleep better at night.

Okay, here’s my prescription for financial security. I think it works at any income level. However, a warning, it is rooted in the 1930s, it reflects people who grew up during the depression, it reflects a fiscally conservative outlook. This prescription comes with a warning. “Follow these steps and you will be viewed as strange by much of today’s society.”

Okay, are you ready to go back to the future?

1⃣ Save first-save automatically

2⃣ Compartmentalize your money

3⃣ Never spend coins

4⃣ Never pay interest

5⃣ Spend prudently

6⃣ Never make long-term commitment with short-term money

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1⃣ Your net income, hence your standard of living is based on the money you have after you pay taxes and save. The sooner you save and the more you save is critical even if you must reduce savings down the road. Don’t wait and don’t stop! Save automatically from your paycheck or have your bank move money into your IRA, etc.; budgets don’t work. If you save $100 a month starting at age 20, you will have about $$349,101 at age 60 (at only 8%). If you wait to start saving until age 30, you must save $225 a month to accumulate the same amount.

2⃣ Here is one you may find strange, but I think it forces discipline. My wife and I have several bank accounts. She has a checking account for what she buys, and for donations. I have a checking account for my expenses and for most regular monthly bills. From this account we transfer money each month into another checking account where we accumulate the money needed for property taxes and other known ongoing house obligations plus a fixed amount for future car expenses, snow removal, etc. My wife also has a savings account as do I plus another savings account for travel expenses. Having all these accounts may seem strange, but the secret is that they don’t mingle. That is, if we want to travel, but there is no money in that account, we don’t travel because we don’t take money from the other accounts; all money is isolated for the intended purpose. You know what you have to spend and what you don’t.

3⃣ This is my thing, I don’t spend change, and I don’t pass by even a penny lying on the ground. I take my coins, put them in a bank and the accumulated money, around $500 a year, goes into the trip savings account. It’s just a discipline, a habit that constantly forces me to save. Give it a try.

4⃣ There is one practical exception for most people; the home mortgage. But other than that pay cash, yes even for a car. How? Well, the first car may be a problem, but when that car is paid off keep paying yourself the monthly payment until you have enough to buy a new car and yes it will take a number of years and your car may be ten or more years old, but you will save a small fortune in interest. Needless to say, credit cards are out unless you have the discipline to always pay the full balance at month end, always. Those points you earn can come in handy.

Note: while we are talking about paying yourself, when after nearly forty long years my mortgage was paid off, I started paying myself the mortgage payment. I hadn’t used it for all those years so why let it disappear into routine spending. The money goes into a savings account and if it’s needed for an emergency or special expense, it’s there and growing each month.

5⃣ Sounds pretty straightforward, but this is the one that gets most people. Exactly what is prudent? The fact is I can’t tell you. My idea of prudent spending is surely different from yours. For a month or so keep track of what you spend and later take a close look at that spending. Was it all necessary? One thing is sure though, you have a better chance at prudent spending if you follow steps 1⃣ through 4⃣

6⃣ Governments are good at screwing this one up. They receive a one-time grant from the federal government and go out and make an ongoing commitment such as hiring additional personnel. Your experience may be an unexpected bonus or overtime or even winning a small lottery. In any case, if you choose to spend that cash, don’t do it by making a commitment that goes beyond those funds. Better still, save a good chunk of it.

So what do you think? Maybe you have some additional, even better ideas. If so, let’s hear them.