Becoming a Money Manager

The following is a guest post from Jeff at Minding My Own Business.

Handling your finances comes with myriad tasks.  You earn, you pay bills, you invest, you write checks, you plan, you, you, you....  I think you get the idea.  Handing the finances is a lot of work for you.

I view the tasks involved with handling finances as being divided into two distinct and different roles.  Just like at work you have worker bees/followers and managers/leaders.  I like to call these roles the Money Handler and the Money Manager.

The Roles

The Money Handler gets his hands dirty doing the bits and pieces necessary to keep your financial vehicle running.  He changes the oil, adds wiper fluid, puts air in the tires, replaces light bulbs etc.  To quote an English friend of mine, the Money Handler "works at the coalface."

From a personal finance perspective, Money Handler tasks include:

1. Paying bills - writing checks, stuffing envelopes and licking stamps.
2. Making investments - filling out paperwork, writing checks or making e-transfers.
3. Moving money - between accounts as necessary (e.g. on payday, etc.)
4. Reconciling accounts - balancing checking, savings, etc.

The Money Handler focuses on the details necessary to implement the financial plan.

In contrast, the Money Manager is responsible for seeing the forest rather than the trees.

He provides the strategic leadership for your financial vehicle.  Where are you going?  What route are you going to take in order to get there and when will you depart?  If the Money Handler “works at the coalface,” then the Money Manager is a chief executive officer.

From a personal finance perspective, Money Manger tasks include:

1. Setting Goals – deciding where to go financially.
2. Developing plans and strategy – necessary to achieve financial goals.
3. Monitoring earnings and expenses – focusing on creating and maintaining positive cash flow.
4. Guiding, monitoring and assessing the execution of financial plans.

Bottom line: the Money Manger develops a financial plan for the Money Handler to implement.

Both roles are necessary in order to properly handle your finances.  However, the Money Manger role is more important as it will determine your success.  I’ve often said that a “failure to plan is a sure fire plan for failure.”  If you’re not a Money Manager you need to become one sooner rather than later.

That means finding ways to accomplish Money Handler tasks without monopolizing your time.  If your spouse is willing to help, you can divide the responsibilities between the two of you.  If you’re single, you don’t get much of a choice in the matter, you’re stuck with both roles.

In today’s world of the Internet, e-commerce and e-banking there exists another viable option.  You can outsource the tedious tasks.  I don’t mean hire an employee to pay your bills, but rather take advantage of modern day conveniences to automate routine Money Handler tasks.  Doing so will enable you to spend your valuable time being a Money Manger instead.

Ways to Automate

• Sign up for direct deposit.  Your paycheck will be deposited automatically into the bank account of your choice.  I’d be surprised if your employer doesn’t offer this service and shocked if your bank couldn’t handle its receipt.

• Sign up for online access to all your banking and investment accounts.  One of best ways I’ve found to automate my Money Handler tasks has been to take advantage of on-line banking and investing.  It only takes a small leap of faith to begin dealing with your financial institutions via the Internet.  Security and convenience is important and they know it.  You’ll have a hard time finding any financial institution that doesn’t offer online access with both features.  Instant access to my accounts 24/7 means I can conduct my Money Manger tasks when it’s convenient for me.

• Set up automatic transfers, if required.  Each month I automatically transfer a certain amount of my paycheck from my primary bank account to higher interest bearing money market fund at a separate financial institution.  It’s the same amount, every pay period and it happens whether I remember to do it or not.

• Set up automatic bill payments.  Talk about convenience.  You never have to worry about being late or forgetting a bill.  No more stamps, no more checks and no more envelopes.  Save that for your Christmas card list.

• Set up automatic investments.  This is a great way to make regular investments and take advantage of dollar cost averaging.  For many years I enjoyed making investments manually (albeit electronically).  I liked the feeling of empowerment I had each time I invested in my future.  I’m disciplined, but I admit to being tempted at times to spend that money on some extravagance instead.  Putting your investments on autopilot removes the temptation and frees up valuable time.

• Use a credit card to pay for everything.  Your automatic bills can be on the credit card.  Your monthly expenses can be on the credit card.  What’s the advantage you ask?  No more check writing, no more cash carrying and no more tedious balancing of your checkbook.  I truly cannot remember the last time I wrote a check and I haven’t reconciled my checking account in a couple years.  By maximizing credit card use, you dramatically decrease the number of transactions in your traditional checking account, making reconciliation almost not necessary.  A quick glance online and I can usually spot anything that might be amiss.  At the end of the month you pay your credit card automatically and electronically as well to complete the circle.  One final advantage of adopting this method is the rapid accrual of credit card rewards.  Points, miles or cash back, the choice is yours.  I personally like cash back.

DISCLAIMER - You have to be responsible with the credit card technique.  I recommend taking advantage of it, but you need to be in the habit of paying off the balance each and every month.  Carry nothing over; otherwise you can get yourself in trouble fast.

There you have it, tips to automate and simplify your finances so you can focus on managing your money rather than handling it.  Becoming a Money Manager is vital to ensuring your long-term financial success.   

How do you handle your money?  Is it automatic?

Comments

[Kevin]

Jeff - did you follow me around for a month, then write this? Because it pretty much describes how I handle finances. Except I do reconcile my bank account - mostly out of habit since I'm an accountant. Takes about a minute though since I only have about 10 transactions run through there per month.

About the only thing I would have added was to "manage cash flow". I get paid every two weeks, but most bills occur on a certain date, so I need to make sure there is enough in the checking account to cover it. It's not that I don't have the money, I just prefer to keep as little as possible in checking, preferring to move most of it to our Vanguard money market instead.

[Jeff @ MMOB]

Kevin - I didn't spy on you, I promise. Rather, I just looked in the mirror. Maybe you and I are long lost twins. :-) Seriously though, I'm happy to hear I'm not the only one out there striving to rise above the trees so I can focus on the entirety of the forest.

You make a great point about managing cash flows. I do that as well and will add your idea to my bag of tricks when I discuss this topic with others.

Thanks for the input
-Jeff
I'm Minding My Own Business, are you minding yours?

[Bad_Brad]

There are actually two advantages to paying your bills by credit card (assuming you can pay your credit card balance in full every month to avoid interest charges):

1. You save 42 cents postage and about 15 cents for the cost of the check you would have written

2. You accrue rewards, generally at the rate of 1% of the amount of the bills paid

So, if in a typical month, you pay 10 bills that total $1000, #1 saves you $5.70 that you would have paid in postage and checks used and #2 actually puts $10.00 of rewards (cash, airline miles, other rewards) in your pocket. It's such an easy thing, I'm amazed everyone doesn't do it.

[Tom]

I agree with most of this, but I couldn't disagree more with your stance on using a credit card.

Some bills I pay through auto-debit, while others get paid through my bank via bill pay, thus, no postage costs.

When I use my debit card for everything, I get cash back every month from my bank. Usually it's about $7 or so, sometimes more, but usually not less.

The bonus is that I never have to sleep with the snakes in the credit card industry. I never spend more than I can, and I never have to worry about a late fee. I know, I know, "I pay it off every month..." If I had a nickle....

There's also the study done by Dunn and Bradstreet about credit usage that is frequently mentioned here, but most folks collectively deny it because they don't believe it or they think it doesn't apply to them... You're not spending my money, so I really don't care what you do, but to deny something that's been proven many times is just ignorant. See the hyperlink for more info on credit use and the Dunn and Bradstreet study. It's just one example, there are many more out there that show the same thing. You should really address this issue sometimes if you really want to help people, as I'm assuming your blog is designed to do.

[Tom]

Here's the link, it didn't show up on the other post.

http://www.associatedcontent.com/article/142336/do_we_really_spend_more_with_credit.html

[Tom]

Here's another link, but you can listen to this one.

http://www.npr.org/templates/story/story.php?storyId=92178034

[Jeff @ MMOB]

@ Bad Brad - Don't forget the intangible savings of not having to lick the glue on the back of the envelopes.

@ Tom - I'm sorry to have disappointed you with my approach to credit card use. All I can say is this method works for me and my family's finances. I know how much my disposable income is each month so I just monitor the CC spending to make sure we stay at or below that amount. That's not much different than working directly out of a checking account if you adhere to that discipline. I guess we can call this one different strokes for different folks.

My monthly CC bill is on the order of $3500-$4000 per month. This month I earned $51.03 back in cash and have earned in excess of $580 cash back over the last 12 months or so. I think the cash back rewards associated with the credit card I'm using are a bit more lucrative than what your bank is offering you.

Thanks for the links to the studies you reference. I look forward to reviewing them.

As for your broader concerns about FMF's approach to credit card use, that is not for me to address. I'm a guest here so I can't speak to the specifics concerning FMF's feelings on this topic.

Brad and Tom, thanks for taking time to read and comment on my views.
-Jeff
I'm Minding My Own Business, are you minding yours?

[Colin]

This isn't so much a comment on the post, but a comment on Tom's comment. Even if there is a tendency for people to spend more when using a card (though the notes on the link seem to question whether that D&B study is accurate), this could be simply an effect of selection bias.

For example... I go to McDonalds for lunch, and pay with cash, because I have an aversion to using a credit card for a $5 charge. I probably have the cash on hand and feel that its simpler. For that matter, some merchants have a transaction minimum for accepting credit card payments (though maybe not McDonalds).

Second scenario: I go to McDonalds and buy dinner for my family for $20. I don't have a $20 in my pocket, so I charge the meal. Everything is the same, only I feel more comfortable using a card for a higher dollar transaction.

So, the reasoning isn't "well, I'm using a card, so I may as well Supersize it since its not real money", its different kinds of transactions for cards and cash.

As to Jeff's main post, I thought it was pretty spot on. It's easy to spend way to much time as the "handler" and forget about the "manager" part.

[Rick]

I have found if I am using a credit card for everything then it makes tracking expenses difficult. I spend more time breaking the credit card bill down. $120 this month for dining out, $150 for gas, etc. Debit was easier since it comes right out of account vs getting one bill. Although I miss cashing in the rewards around Christmas.

[Chaturon "Chubracabra" Wattaporn]

Add Quicken (to automatically assign tax categories to banking and credit card transactions), Turbotax (imports all data from Quicken), and Yodlee.com (one-password access to all one's banking and credit card accounts) and one can become virtually financially independent, i.e., independent of having to micromanage finances!

A few clicks to see one's assets, liabilities, upcoming bills, net worth, etc. Freaking great!

[Kevin]

Tom -

While your point may be correct for "most" people, I hope you can admit that there are some out there that use credit cards to our advantage and don't overspend. Even Dun & Bradstreet admits it implicitly in this quote from the article:

"Statistically they found that on average you will spend 12-18% more when making a purchase with a credit card as opposed to cash."

"On average" being the key words. Like Colin pointed out, when I go to Starbucks to get a coffee, I get the same coffee whether or not I pay with cash or credit. Also - what about the fact that debit cards are issued through either Visa or Mastercard - so you are in fact dealing with "snakes" in the CC industry.

Like I said before, using the credit card for everything but a few bills that are autodrafted smooths out my cash flow and makes planning what to keep in checking and what to move to higher yield MM account much easier. But at least you have a plan Tom, that's more than most people.

[Jenny]

Maybe it's a Gen-Y thing but it's hard for me to imagine anyone *not* managing their finances online these days :) I have all my bills on auto-pay to my rewards credit cards, and the credit cards paid electronically via my bank's bill pay. One additional advantage that I haven't seen mentioned is that payments are guaranteed on time, provided you schedule the payment 24-48 hours in advance - no risk of a lost check.

I have the opposite problem Rick does regarding tracking spending. I have no idea where my cash goes, so I put as much as possible on credit cards. Quicken is a great solution, as are sites like Mint.com that automatically track it for you. Many of the bigger banks have that tracking software built into their online interfaces (B of A and Citi do, I believe Wachovia might as well). With a couple of clicks I can see my monthly or yearly spending compared to my budget.

Colin: just FYI, minimums for credit card purchases are against the merchant agreements with MC/Visa. Many mom and pop stores still do it, but a company like McDonald's would get a lot of flack if they tried.

[Jeff @ MMOB]

Thanks all for the great comments and continued discussion. I hand no idea the idea of using credit cards was going to stir the pot so much.

@ Chaturon - I use Quicken as well, but have stopped inputting every transaction. It's main use now is tracking investment performance and managing net worth. Basically tasks that help me monitor My Own Business and focus on its growth. I've not heard of Yodlee.com before. Thanks for the link, I'll check it out.

@ Kevin - Sounds like you've got a good system going. One point of further clarification on my activities. I actually point everything at the credit card, even the monthly autodrafted bills like power, phone, cable, cellular etc.

@ Jenny - Amen sister! :-)

-Jeff
I'm Minding My Own Business, are you minding yours?

[Walden]

Thanks for the great post! I still pay almost every bill by paper check and snail mail (a habit leftover from the days when I had to wait for my next paycheck to mail in my payment) Now, even though I am on top of my finances and always have enough to cover my bills, I still am nervous about setting up Auto Bill Pay. But this post has helped me realize that in order to become a "Money Manager", I need to let go of my "Money Handler" habits!

[Kevin]

Jeff - the only reason I don't charge my gas and electric bills to the CC is because they charge a ridiculous "convenience fee" to do so. I think it's like $4.95 or something per month, which would completely negate the rewards I get and then some. So those and the mortgage are on autopay through the checking account.

[Jeff @ MMOB]

@ Walden - I'm glad you liked the post. I hope it helps you take that next step.

@ Kevin - I hear you on the fees. I have a couple like that as well. Bank of America has a nice feature with their CCs that lets you PUSH money to the bill collector, avoiding the processing fee the company is trying to charge you. I don't know how BOA gets around it, but I don't get hit with those fees. My primary card is with Chase now becuase a customer service rep at BOA made me mad once upon a time ago. For those three bills I get from companies that either can't do autopay, or try and charge me a fee (and only those three bills), I still use the BOA card to PUSH money at them. Everything else is set up to PULL money from Chase on my behalf.

-Jeff
I'm Minding My Own Business, are you minding yours?

[Richard]

'I know, I know, "I pay it off every month..." If I had a nickle....'

I'd gladly give you a nickel if I can keep my cash back :-)

Back in our less responsible days we carried a balance twice. It was sheer forgetfulness, not a lack of money to pay it off with. We've made more in cash back this year than the $60 those two lapses cost us.

I wouldn't recommend it to anyone though unless they are going to be careful to pay it off each month, on time.

--

We look at the $2000 or so we charge to our credit card each month essentially as a short term 0% interest loan, and we invest that money in our ING account during that float period. That brings the financial benefit even higher than the base cash-back amount from the CC itself.

[Bad_Brad]

@ Colin - it is actually against card association rules for a business to have a required minimum purchase to use a credit card.