Credit Sense: Money Management

To play a game, you must learn the rules. To win a game, you must apply the rules well. Money management is like a game: play it right and you’ll come out on top. But since this is one game you’ll never stop playing, learn the rules before you start.

Before you spend

If you pay cash, the only thing you need to do before you spend is to make sure that you can afford the item and that you’re getting the best value for your money. Budget well and shop carefully.

If you buy on credit, follow the advice of Church leaders in avoiding unnecessary or unwise use of credit. Set up guidelines for using credit.

You know before you go shopping, for example, how much money you have left every month after regular payments are met, emergency savings taken out, and cash set aside for daily expenses. Credit obligations should not exceed the amount left over. A good rule of thumb is not to let credit payments exceed 20 percent of your take-home pay, after the rent or mortgage is paid. If you take home $450 each month and your rent is $150, don’t sign up for more than 20 percent of $300. That’s $60 a month in credit payments.

Since every case is individual, you must set your own rules. You may, for example, be making higher-than-usual rent or house payments; in that case putting 20 percent of your income toward credit buying would be overdoing it. If the reverse were true, you may be able to take on more obligations comfortably. Whatever the case, set your own limits and stick to them.

Before you sign

You can give away your past, present, and future with a stroke of your pen if you don’t carefully read and thoroughly understand everything you sign. This checklist will help you avoid such troubles.

1. Do business only with reputable firms.

2. Do not sign your name on anything you have not read and do not understand thoroughly. This includes all the fine print.

3. Do not sign anything with blank spaces that “the manager will fill in for you later.” What is added could change the meaning of the entire contract.

4. Always obtain a copy of what you sign and keep it for proper records.

5. Don’t rely on an oral promise; always get it in writing.

6. If a contract seems different from what a salesman has told you, don’t sign it until he writes out what he has promised, signs it himself, and gives it to you as part of the contractual agreement.

7. Don’t let a salesman switch contracts on you so that you read one but sign another. If, after you’ve read it, he takes it away for a minute (“for approval”), then returns it, read it again to be sure it is the same one. Make sure the carbon is the same as the front sheet.

8. Don’t sign—for any reason—a contract that an obliging salesman offers to hold for a certain period of time for you—or until you make up your mind. He may execute it before you’ve walked out the door, and you will be required to pay.

9. When you buy something on credit, you might sign two agreements—one to buy the item and one to borrow the money to pay for it. The agreement to borrow the money often belongs to someone other than the dealer. Remember, even if you return the item to the dealer, in most cases you will still owe the total amount to the one who financed the purchase.

10. In making arrangements for home improvements, ask contractors for some references, and check them out. Should you change your mind after signing, you may have a right to cancel the contract within a limit of time—usually certain three days.

11. In some states, mortgaged goods (where the lender actually owns the item until the final payment has been made—as with loans involving cars, boats, and large appliances) cannot be taken out of state without the mortgage holder’s permission. Check this point before signing if you plan to move before the loan is paid. C. Douglas Beardall, financial advisor, Provo, Utah

Illustrated by Bob Simmons