PAYING WITH CHECKS

Each week, I think of something that will help in the area of personal finance. This week, I was writing out the tithe check and I noticed how little I write checks. Checks are written now for only specific items, not for everything. If you observe at a check out counter that very few people write checks. Most people that write checks are usually older ladies. It can be frustrating to watch these ladies write a check. They start writing it after everything has been wrung up which can take up a lot of time. You can tell that these ladies are not time challenged.

Checks allowed people to not to have to carry a lot of money with them when they went to the store. Checks are the same as cash with the exception of a time lag. Once a check is written, the receiver must take the check to his bank and deposit it and then his bank collects the funds from your bank. This takes time for a check to clear. If the receiver takes his time in cashing the check, you will have to list that check as an outstanding check on your monthly bank reconciliation.

Checks are considered near cash. They are an early form of a debit card. What are checks good for in our day of automation? Checks are good for bill paying. Some institutions are small and do not need computer sophistication and thus paying by check is the most practical. I am thinking about the church for instance. Some churches are large enough and you can make your tithe payments by direct deposit. However, this is not practical for some churches and thus there is the usual collection with checks being written for tithes.

Unless, I can put a charge on my credit card, I write a check. For the month of November 2008, I wrote a grand total of six checks. Four were tithe checks to the church, one was for a magazine subscription and one was to pay the personal portion of the church phone bill. Checks are still practical for certain purposes, but their importance as a means of payment has been greatly diminished by the use of credit cards and debit cards, online bill paying and direct deposit.

Check writing is still with us and will probably be with us for the foreseeable future. Checks still have practicality and by maintaining certain balances with some banks, there are no transaction fees or costs to have checks printed. The church has to pay a check printing charge but this $15 or so has to be paid rarely as the church writes approximately 8 checks a month. This means that 200 checks will last 25 months. A minor expense over the course of two years.

Check writing thus is a form of payment for goods and services. It is a cash substitute and offers convenience of not carrying cash. Checks are useful when making a major purchase or making a large payment. This may require purchasing a cashier’s check from a bank. This assures the receiver that the purchaser has adequate funds to cover the transaction. In other words, checks are not going to go away because they still are a practical means of payment. If they were not, we would cease to use them. The frugal are a practical people and still use checks.

PREPAYING EXPENSES

It is good to be ahead financially. Being on top of things is the best way to go. The absolute best way financially is to not be in debt. Having no debt does not mean that you will not have any bills, you will. Each month we have recurring expenses that have to be paid. A financial situation can be viewed as a process of flows. We hear about cash flow. Cash flows in and it flows out. The key is to have more that flows in than flows out. The financial golden rule will forever be do not spend more than you earn. This principle is the key to becoming wealthy.

In accounting, prepaid expenses are considered to be an asset. Usually prepaid expenses are prepaid for less than a year and makes them a current asset on the balance sheet. As each month passes, this current asset becomes an expense. The original accounting entries are to debit the asset Prepaid Expenses and to credit Cash, as your cash account is going down. The monthly accounting entries are to debit the appropriate expense account on the income statement and credit the asset Prepaid Expenses. The principle of double entry accounting helps to keep financial statements in balance.

Why should you or a business prepay expenses? For a business, they prepay expenses such as rent because they are intending on staying in business for a period of time. A business may have to agree to signing a long term lease and have to pay many months of rent in advance. Psychologically, prepaying expenses in advance means that you do not have to hassle with preparing a payment each month. Prepaying saves you time.

Not only does prepaying save you time, but it can also save you money. For instance, my insurance is billed for six months. If I pay this bill monthly, the insurance company charges me $5 extra for an installment processing fee. By prepaying I save $25 over the insurance billing period. So it makes sense to prepay this bill. A rule of thumb is that if there is no money to be saved by prepaying, you may want to pay monthly.

Recently, I got the bill for a newspaper subscription renewal. The subscription is for a minimum of three months and a maximum of one year. There is no financial advantage in paying for three months and paying for a year. The only advantage for prepaying for a year instead of three months is time. With this I pay for a three month subscription. The reason is that money is more important to me than time.

Some businesses give you an incentive to prepay. If you prepay, they will give you a bonus or the price will be reduced. An example of this is where I buy my coffee for work. I go to a local coffee house called the Oasis. The proprietor adds $5 to your account if you put $50 on an Oasis card. Of course, it makes sense for me to prepay this because I get $5 worth of extra coffee. This is an advantage to the business and to me. Prepaying is a win win for both of us.

Only those who have their financial houses in order prepay expenses. If someone is relegated to having to pay additional fees on a monthly basis, then they are that much behind. This is why people remain in financial distress and can never get ahead is because they do not think in terms of saving money wherever possible. There are financial advantages to prepaying expenses and the frugal use these advantages to their benefit.

SPENDING ON NECESSITIES

When thinking in terms of spending money, the vast majority of money should be spent on essentials. After meeting all necessities, any left over is discretionary and can be spent in accord with one’s desires. The key to spending on necessities is first to determine what is essential to maintaining living. Immediately, food and shelter come to mind. We need food to eat and we need a place to live. Note: homes are not investments. They are a necessity.

Work is therefore paramount that the necessities of life can be met. Part of this process of work is transportation to get to work and back home. This means having reliable transportation. As with all machinery, there will be maintenance expenses. Parts on vehicles eventually wear out and need replacing. What happens if you only have one car and your car needs repairs? This puts you in a bind, as our lives are dependent upon the use of the automobile.

The obvious solution is to have two cars. With two cars, if one need repairs, you have a back up. Renting cars can be an expensive proposition. It may be an alternative in the short run, but owning two cars gives you more flexibility and less hassles. The frugal, almost to a man, will buy used cars. Why used cars? Over the course of time, it will be less expensive than purchasing a new car. Remember, even new cars will need maintenance. With used cars, it is easy to justify carrying the minimum liability insurance. Insurance is something that must be factored into maintenance expense of a vehicle. The newer the car, the more insurance premiums you will pay.

Having two cars had its advantage for me this week. My wife was walking home from work, when she noticed that the front left tire of our Buick that was parked by the curb in front of our house was flat. That day, it had rained all day and it was too late to put on an alibi tire and go get a new tire. Because I had another car, I could wait two days before I had to put the alibi tire on and go to the tire store.

The place where I go to get tires has a business arrangement with the VA employees for $5 off for each tire and 10% off for labor. The associate at the tire store noticed that the other front tire was beginning to dry rot, so the flat tire was a blessing in disguise. I replaced both front tires and got $10 off. It is an advantage to have two cars. This example is illustrative of this point.

STICKING TO THE BASICS

Most people act as if the world is not governed by absolutes. They actually believe that change is possible. They are unaware of predefined limits. They will never achieve success until they realize absolutes and begin to work with them, not against them. Any endeavor requires possessing a certain amount of knowledge and then putting that knowledge to work over and over again. Success is based upon using applied knowledge repeatedly.

Constant change results in things being in flux. This is a highly unstable and unpredictable condition. The key to success is being able to predict things in advance. Living in a stable and predictable world makes applied knowledge beneficial. Fortunately, evolution is a myth. God has created an unchangeable world. This makes knowledge a valuable tool in our having dominion over creation.

Knowledge consists of elements. Element is defined by Noah Webster’s 1828 Dictionary as, "The first or constituent principle or minutest part of any thing..." These elements are thus basic to any system. All systems are comprised of elements or basics. Without a system, failure is assured in any endeavor in life. Thus random action is of no use. Thus, systematic application of knowledge proves the falsity of evolution. Those who profess to believe in evolution and yet use systematics in the real world are hypocrites.

Having a financial system in place will assure financial success. Part of that success consists in saving money whenever and wherever possible. This means that when purchasing products, it is wise to stock up or store up as much as is possible. For instance, I like to eat popcorn. I use a product called Liquid Aminos as a topping. This product is on sale at the Health Barn for $5.49. Its normal price is $6.69. I bought the 8 remaining bottles on the shelf. Since I bought in quantity, the manager of the store gave me a 10% discount.

If I would have bought the eight bottles one at a time at the original price of $6.69, the total purchase price would have been $58.60. By buying all eight bottles at the sales price including the 10 % discount, my total cost was $43.28. I ended up saving $15.32 on the deal. This gives me $15.32 to spend on other things. This is an elementary principle of being frugal. Saving money wherever possible is wise. This allows you to have more financial options.