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Your Very Own Hedge Fund

Several years ago, when gas prices were at their highest in Los Angeles, I paid $4.26 a gallon—$102 to fill my Chevy Silverado.

As I write, at $1.97 a gallon, the cost for a full tank of regular-grade gasoline for my truck has plummeted by half to $48. 

Regardless of where you live, it’s likely that you’re experiencing and enjoying the same thing—cheap gas. You’re saving a ton off the peak prices of past summers.

Price and Gasoline

It’s so easy to ignore it though and let that “saved” money stay in your bank account, where it will inevitably be spent on something useless. Or just evaporate unnoticed the way money in a checking account has a way of doing. 

However, the truth remains: Because fuel prices have dropped dramatically, all of us are spending a lot less on gasoline compared to what we were spending a year ago.

Now is the time, before you get too comfortable with the cheap prices, to create an automatic transfer of the money you’re not spending on gas, into a special account to protect you when the prices go higher. You cannot predict what prices will do, but you can get prepared.

Call it your hedge fund—a term that describes an investment position intended to offset potential losses/gains in the future. That’s what big shot investors do, they hedge against future losses. So can you. Here’s a painless way to do it...Click to Tweet

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9 Easy Moves That Will Simplify Your Spending

Confused and stressed out about how to manage your money so you don’t run out before payday? Put these nine easy moves into action and you’ll be well on your way to simplify your spending.

 

I know what you’re thinking—simplify and spending in the same sentence? Ha! Like that’s even possible when we have credit cards, debit cards, bank accounts, bills, bill-pay, auto-pay, fees, penalties, interest rates, and fees to keep track of. How can we possibly make managing money simple?

By having a plan. By choosing to become accountable and then using every tactic possible to streamline and de-stress your money.

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The Secret to Staying Out of the Red and in the Black

When I am not writing about personal finance and consumer debt, I knit. Something about the gentle rhythm of yarn and needle calms my spirit and unwinds my brain.

A woman standing in front of a mirror posing for the camera

I have managed to finish a few projects, not because I’m a great knitter but because I can “tink” almost as well as I knit (knit spelled backward is tearing out).

Because all knitters make mistakes, tinking is a required skill for those who take the craft seriously. It doesn’t take too many oversized sweaters or undersized hats to figure out that the smallest error at the beginning of a project can produce disastrous results if not found and corrected.

Just two options

Money is a lot like knitting. By some miracle, all knitting consists of just two stitches: knit and purl. Likewise, with money you have two options: spend or save. And who among us can say they have never made a financial error? We all make mistakes but the secret to staying out of the red is correcting the little mistakes before they lead to disastrous results.

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Anticipate Your Way to Freedom

Try this: Add up your monthly expenses and deduct the total from your monthly income. Hey, not bad! You should have plenty of money with some left over. So why is there never enough? The answer is your selective amnesia. Most of us suffer from it.

We conveniently don’t remember expenses that don’t recur every month. It’s easy in March to forget about summer vacation, back-to-school clothes, wedding and shower gifts, new refrigerators, or myriad other inevitable expenses. The solution is to make all of your expenses as predictable as the rent, phone, and cable TV bill.

A man and a woman using a laptop computer

I call my solution a “Freedom Account.” It’s a simple account you set up for yourself an you name it Freedom Account. It forces us to anticipate irregular expenses so we can finance our own emergencies. It will bring freedom to your life like you could never imagine.

If you remember Christmas Club Accounts, you’ll understand my Freedom Account. Basically you determined how much you would need for Christmas shopping. You authorized the bank to transfer 1/52 each week (or 1/12 if you did it monthly) from your checking account to your Christmas Club Account. It was painless because you didn’t miss money you didn’t see and the results were huge. You got a big fat check in the mail for holiday shopping.

Step 1: Determine irregular expenses

Make a list of your non-monthly expenses and an annual amount for each (estimate if you don’t know). Divide by 12. This is the amount you need set aside each month. For example:

Auto Maint $900/yr / 12 = $75/mo.

Auto Ins $540/yr / 12 = $45/mo.

Christmas $800/yr / 12 = $66/mo.

Property Taxes $600/yr / 12 = $50/mo.

Vacation $720/yr / 12 = $60/mo.

Clothing $600/yr / 12 = $50/mo.

Total $346/mo.

Step 2: Open another checking account

You must have two active checking accounts for this to work and you will need personalized checks for it, too. Continue to deposit your paychecks into your regular checking account.

Step 3: Authorize an automatic deposit

Using your bank’s money transfer authorization service, fill out the necessary form to instruct the bank to transfer the monthly total (in this example it is $346) from your regular checking account into your Freedom Account.

Step 4: Get a notebook

Any 3-ring binder will do or you could do this on your computer or mobile device. You want a separate page for each of your categories, to record its specific activity. At the top of the page write the name of that sub-account and the amount to be deposited into it each month. I keep my accounting very simple. I can see at a glance the balance in each of my sub-accounts.

Step 5: Manage your Freedom Account

You have a new monthly expense, in this example it is $346. Like your car payment, your rent or your mortgage you know it’s coming, you know how much it’s going to be and it will become comfortable. It will take you about 5 minutes each month to manage your Freedom Account. You will want to make sure you have a current balance in each sub account that reflects the deposit and any checks you’ve written during the month.

Now as you have an expense like a car repair, your auto insurance bill arrives and so forth, you write its check from your Freedom Account, recording that expenditure in your Freedom Account notebook, which reduces that particular sub account’s balance. Easy. And you’ll be giddy with joy knowing that you are prepared–you’ve already set aside and stipulated funds for something you anticipated.

The secret to breaking your dependence on credit cards is to begin anticipating your irregular expenses. Developing your own Freedom Account is a perfect way to do that.

The Freedom Account is one of the 5 Core Elements of Debt-Proof Living, and a complete chapter in my book Debt-Proof Living.

Question: How do you handle expenses that don’t occur every month, things like vacation, clothing and car repairs? I always read your comments and enjoy them!