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Sunday, August 26, 2012

How to use your credit card properly

Most of us have got a credit card.  It is a useful tool for accessing large sums of money quickly. This, unfortunately is also the worst thing about it.  And since nobody is teaching us how to use a credit card properly, many people end up paying interest bills on their credit card every month.  They do this without getting the full benefits of the use of the card as it is usually at its maximum limit.

So for those of you contemplating getting a credit card for the first time, this is for you.

1. Your credit card is used to make purchases not to finance things.

That means, don't use your card to buy equipment for a business.
Don't use your card to pay University tuition fees.
Don't use your card to buy anything that will take many months to pay off.
Don't use your card to purchase shares or other investments.

Why not?

Because the interest rate is too high.  If you need large sums of money to finance your business, studies or investments, there are better loans out there.  Go and talk to your bank manager about getting a start-up loan and what these involve.  If they won't lend you the money, then that's probably as good an indicator as any that you shouldn't be spending it.

Do use your card for daily purchases like groceries.
Do use your card for anything you would otherwise pay cash for.
Do use your card for paying for haircuts and movies and clothes and restaurants.


Because it makes it so much easier to keep track of your spending.  At the end of each month you can look through your credit card bill and see exactly where your money has gone.  If you have spent $500 on take-away food in one month, you can assess this and decide if you should perhaps cut back on take-aways.  Also you can check your balance throughout the month.  I have a mental limit (not my credit card limit) not to spend more than $2000 each month (Total).  This includes groceries, bills, treats, everything.  If my balance on my card is $1850 on the 23rd of the month, I might decide not to bother grocery shopping at all until the first of the next month.  I'd use up all the rest of the food in the pantry first, even if it means going without bread or drinking powdered milk for a week.

2.  Pay your card off IN FULL each month.

Your card is used to make your life easier, not to buy things with money you don't have.  Your card should have an interest-free period.  This way, the first purchase you make on the card does not get charged interest until the following bill is due.  If you pay the balance of your bill (not the minimum payment) on or before the day that it is due, you will not be charged interest.

Why is this important?

Because otherwise you could end up paying $100 for that $50 shirt you just bought on special for $30. It's all well and good buying products on sale, but what's the point if you then go and put it on your card and pay interest on it?  $30 at 21% means that if you never pay your card off in full, by the end of the year you have paid $36.30 for that shirt.  Let's say you've maxed your card out at $2000.  At 21% you'll be paying $420 each year for NOTHING!!!  I can think of much better things than NOTHING to spend $420 on can't you?

3. Set yourself a limit.

Your credit card limit as directed by the bank should not be the limit you set for yourself.


Because life happens and you may still need money in an emergency.
Because the bank wants you to overspend so that they get the interest payment.
Because the bank will always give you a greater limit than you should set for yourself.

Decide on how much you can reasonably pay off each month.  Factor in the cost per year for car services, roadside assistance, electricity, insurance etc. Don't go over the limit.  Check your progress via internet banking each week to see how you are going.  If you are overspending, you can cut back.  If you get a particularly large bill in, your savings should be able to cover this.

Lets look at an example.

Say you are earning $4000 per month.  You are putting money into savings, rent and paying off a car so you decide that you can reasonably afford $2000 on the rest.  Your irregular bills (insurance etc.) come to around $5000 for the year.  So set yourself a limit on your credit card of ($2000x12-$5000)/12 = $1583 per month.  Round that down to make it easier.  Your credit card mental limit should be $1500 per month.  Don't spend any more than this except if you get one of those bills in.  Still put it on your card though, that's what it's there for.  When your credit card bill comes in, transfer the whole balance from your usual account onto your credit card.

4.  Don't get cash out on your card.

Why not?

Because it does not come with an interest free period.
You'll be paying interest on it from the second you have the cash in your hand.

What to do instead.

Let's face it, there are always things that are easier to pay cash for.  You don't want to have to spend $10 just so that you can put that $3 coffee on the card.  Instead, factor in some cash each month to your regular spending and get that out from your usual account.  Using our previous example, we have a $1500 mental limit.  Get out maybe $100 each month for cash transactions and reduce your mental credit card limit to $1400.  Once the $100 is gone, don't get any more out.  Or alternatively, if you have a night out planned with drinking and merriment, check your credit card balance, make a mental note to reduce your limit, get out what you think you'll need and don't go back to the ATM.

Any Questions?

Sunday, August 19, 2012

Five great reasons to get a personal finance coach

It may seem expensive, especially if you're struggling to make ends meet but here's how a personal finance coach can benefit you:

1. They can teach you how to do better than just making ends meet. 
Let's face it.  If you are struggling financially, then you can't afford not to get a coach.  Your coach can give you some great tools for learning how to find and save money so that you can get your life back and not worry so much about what you can't afford.

2.They can keep you motivated.
Having a coach is like having a Gym buddy.  You are more likely to put in the effort if there is someone cheering you on and keeping you accountable.

3. They have done all the reading and research.
If sifting through finance books to see what is relevant to you puts you to sleep, don't worry.  Your personal finance coach has already read all of the books and can direct you to a number of strategies to help you improve your situation, or at least give you a list of chapters to read for yourself.

4.They have experience working their own finances.
Who better to explain what works than someone who has been there and done that.  Want help to learn how to keep track of your finances?  Here, use my spreadsheet.  Want to know why you're having trouble saving?  This is what happened to me.  Want to know how to get those debts down?  Check out these strategies.  Want some tips and tricks to get the best deal from retailers?  I've got the inside scoop. Come and see how I achieved my financial goals so that you can achieve yours.

5.They can be a sounding board for you to bounce ideas around.
A coach is a supportive person who is willing to listen to your point of view.  They'll help you to work through your ideas and help you build an action plan to achieve your goals.

If you want to see what a personal finance coach can do for you, email michellecroner@y7mail.com and introduce yourself.  Put "Coach me Michelle" in the subject line to get a personal reply.

Saturday, August 11, 2012

Three stages to wealth

I used to pride myself on paying my bills on time... and I was always broke. Now I can pay my bills on time and I'm rich.  The secret?  Learning how to NOT pay your bills on time.

Let me explain.  Back when I was broke, I tried to save money. Every pay I would look at my bank balance and see the amount grow and grow.  Then a bill would arrive and I'd pay it.  Then another would come, and another, and another.  Eventually I'd be back at square one with no savings.  Does this sound familiar?  What was I doing wrong?  I tried to save.  I was being stingy with my spending but still my money just seemed to disappear.

Lets look at my situation now.  I save money.  Each time money comes in, I look at my bank account and see the amount grow and grow and grow.  Then a bill arrives and I pay it... on time.  And another arrives and another and another.  But I never get back to square one.... ever.  My balance always gets bigger and bigger and bigger.  Am I earning more money?... actually no.  I'm earning less now than when I was broke.  Have my expenses decreased?  No, I have two small children now.  My expenses have increased significantly.

Am I lying to you? No again.

So what is the difference between then and now?  The very significant attitude change that facilitated the change from broke to rich.

And now the secret.  Not paying the bills on time.  You see, I put my savings as a higher priority than paying the bills.  I didn't even know how to budget and this began to work.  After I learned to budget, it worked better, but the key to success was the attitude shift.


I'd get paid, save some money and then a bill would arrive.  Instead of paying the bill with my "savings", I would wait until more money came in.  This was pretty easy because I had a job and was getting paid regularly.  So then, I'd get paid, save some more money, and pay the outstanding bill.  I'd watch my savings go up and up and the bills still got paid.  Not immediately and sometimes not even on time. But they always got paid AND I still managed to save.

Lets recap on the THREE STAGES TO WEALTH

Stage 1
Pay your bills on time and stay broke.

Stage 2
Save first, pay your bills when you get money in later.

Stage 3
Learn to budget, save first, pay your bills out of money allocated for that purpose.

The only difficult part is changing your attitude to one that is more relaxed about paying your bills on time.  But if you are prepared to go through stage 2 then eventually you can get to stage 3 and you can be rich and still pride yourself on paying the bills on time.  Have faith that this stage will come and you may find it easier to change your priorities.  After all, who is more important? You? Or the Internet company/ Telephone company/Electricity company/Somebody other than you?  I think you'll find the answer is quite obvious.

Saturday, August 4, 2012

The Family Budget

When I think about budgeting, I can’t help comparing it to dieting.  Both seem to induce negative attitudes from people and nobody wants to talk about it or think about it and it gets put off.  But it doesn’t have to be that way.  A healthy diet is not about limitations and what you can’t do.  And neither is a healthy budget.  It can actually be quite liberating.
            If you don’t have a budget, you will often be scared to spend money because you don’t actually know what you can afford.  You may even have yourself convinced that you can’t afford anything you want and therefore don’t let yourself want anything.
If you don’t have a budget, you may spend everything you earn and then be surprised by a regular bill and not be able to pay it.  Or you may have ‘maxed out’ your credit card and be stuck paying large amounts of interest for things you no longer have or can’t remember purchasing.
But if you know what bills are coming up and have a set amount put aside for ‘play money’ then you can take full advantage of opportunities to spend money on things that you want.  You can even enjoy the planning for the purchase of these things rather than buying something on impulse and feeling guilty later.
The best thing about budgeting is that you don’t actually have to stick to it.  It’s like any new skill, you won’t get it right the first time, but have another go next month and work at continually improving.  If you make a mistake, don’t beat yourself up or throw the whole thing out the window. Acknowledge that you tried and try again.  Here’s a simple starter template for you to have a play with.  Make sure $A = $B+C+D+E+F.  You can do this just for your income or you use it for your end of month bank balance as well.  Happy budgeting.

Investment fund
Regular Bills
Savings for expensive stuff
Play money