Budget Banter

Tweak your money habits for a financially healthy new year

By Barbara Pierce

Laino
Laino

A new year means the opportunity to get your finances healthy.

Patricia Laino offers tips to tweak your money habits to get on a great financial path. Laino is executive director of the Women’s Business Center of New York State in Utica. WBC assists women at every stage of business development.

“I’ve been teaching people how to start businesses for 20 years,” said Laino, recognized throughout the state as an expert in finances. “I learn many of their financial problems and help them with these problems.”

Pay cash is Laino’s first tip. “Pay cash, don’t use credit. Minimize your expenses. The best way to do this is by paying cash,” she said.

The benefits of using a credit card are obvious. Cash is frowned on, it slows things down and it’s outdated. Stores encourage us to brandish our credit cards.

But are there downsides to using a credit card instead of cash? Does it really matter how you pay for your purchases?

Turns out that, yes, there are serious downsides and it does matter, in important ways.

Paying with a credit card is less painful than paying with cash. Using credit cards dulls the “pain of paying,” say researchers. Shoppers who use a credit card do spend more. In one study, the authors found that participants were willing to spend $175 to throw a Thanksgiving party when using a credit card to buy the food, but only $145 when using cash.

The pain of paying is not the same for cash as it is for credit cards. “The more transparent the payment outflow, the greater the aversion to spending, or higher the ‘pain of paying.’ Credit cards are more easily spent,’” according to the Journal of Experimental Psychology: Applied.

Another weird thing they found: Those who pay with cash enjoy a better relationship with their purchased products. Shoppers who paid cash increased their emotional attachment to the purchase as compared to credit card users.

Pay off your debt is Laino’s second tip. “Nothing will drag you down faster than a pile of debt,” Laino said. “Make this the year that you finally get all of those credit cards and loans paid off.”

“Credit card debt is the black hole of personal finance,” financial planner Robert Reed concurred online. “It’s miserable to try to get out of; you want to avoid it at all costs.”

“You don’t need all those credit cards,” suggests Laino. “I only have one.” Keeping too many cards in your wallet can lead to trouble if you’re not organized. For one thing, managing lots of cards makes it easy to forget a payment.

Urge to overspend

Also, having all those cards makes it tempting to use all that credit and overspend.

To pay off your credit card debt, make more than the minimum payment. Credit card companies love it when you pay the minimum every month. At that rate, you’re mostly paying off interest, barely scratching the surface of your actual debt.

Pay off the cards with the highest interest rate first. If one credit line is charging you 11 percent annual percentage rate, while another is charging 9 percent, focus on paying off the debt with 11 percent. Pay it off before touching the other. Sure, it will accumulate interest in the meantime, but since you’re paying interest anyway, do it at the lower rate.

Talk to your credit card companies. Explain your situation and ask if they can help. Many will lower your interest rate for a period of time or waive late fees so you can catch up. If you’ve been their customer for a long time, mention that. Some care about that. If you can’t make headway with the first person you speak with, ask for a supervisor.

Pay your bills on time or you’ll spend money needlessly on late fees. Use your credit card to buy things only if you can pay it off in full at the end of each month.

“And stay away from the mall!” added Laino. “If you must go, pay cash!”

Don’t retire is Laino’s third tip. As attractive as quitting your job might be, there are many reasons to think about waiting.

Far too few people are really prepared to retire in their mid-60s. Between retirement savings balances, rising mortgage debt levels and Social Security benefits that pay more by working longer, the financial incentive to keep working is significant.

For every year you delay in collecting Social Security benefits, they increase by about 8 percent. By waiting from age 67 to 70, you’ll make your benefits about 24 percent bigger.

Staying on the job longer not only benefits your wallet, but it’s also good for your overall health. A study showed that retirement has a negative impact on a person’s physical and mental health.

WBC provides tools to help women launch and expand successful companies. They assist through one-on-one counseling, training events, networking, and mentoring. For more information, visit https://nywbc.org/ or call 315-733-9848.