Finances 2018

Credit Cards

via GIPHY

You are in the middle of the ocean and all of a sudden a vinyl raft appears.  You grab it, but before you climb in, you realize there is a small hole in the center.  Do you get in anyways and risk getting tangled up in the sinking boat  or do you bypass it and continue to swim on your own?
We make this decision each time we decide whether or not to put an expense on a credit card.  There are so many ways to throw money out of the window, but credit card use/management seems to be one that is overlooked often until it is too late. 

Common Problems - Does any of these "I" statements apply to you?

1. I WILL PAY IT OFF BY THE END OF THE MONTH!  Yeah right, most people say this when making a credit card purchase. It rarely happens.  The purpose of credit cards is to make you feel comfortable about making a purchase that you most likely do not have the money to pay for.  Think about it - why would a credit card statement contain paragraph after paragraph explaining the penalties and interest charges for when  you don't pay it off.  "Your balance is due at the end of each billing period to avoid paying interest.  If the entire balance is not paid then...[pages of explaining your consequences]."  Yep! They are counting on you not paying it off.  
2. I KEEP A CREDIT CARD AS AN EMERGENCY BACKUP!  If a credit card is your emergency fund, then you are definitely in trouble!  Let's think about this.  You are going to have an expense that you cannot afford so you will put it on a credit card and pay extra (interest) on what you cannot afford to buy more time to not be able to afford it. Additionally, we then know emergencies never ever happen soon after each other, so in the 20 years it takes you to pay off that $1000 (which turned into $5000 due to interest), no other emergencies will occur.  Yep, that scenario does not work out so well. 
3. I USE A CREDIT CARD FOR MY VACATION SO I CAN PAY ON IT ALL YEAR AND NOT AFFECT MY BUDGET!   Well, if you are going to pay on it and the extra interest charges all year, it is going to affect your budget ALL YEAR.   Enough said!  

Solutions

• If you really are going to pay off your credit card each month, then use only a credit card that offers a "cash back" option with no annual fee.  Use it all the time even for simple things like groceries, gas, and car insurance.  The key is actually paying it off.  I made $1051.36 last year doing this (see my rewards balance above) and I did not pay one drop of interest!  I simply used my credit card like a debit card for things I was going to pay cash for anyway and then turn around and send the money in.  I use online banking so with a click the bill is paid from my checking account each payday.  At first my husband laughed, "2% of $100 is only $2".  Yeah! I get $2 each time I go to my neighborhood grocery store and I go a lot!  I get about $6 each time I pay my Internet/Cell/Cable bills.  You get the picture. I get paid to pay my bills, eat out, and get gas.  Imagine if I would have done this all of my adult years. My cash back earnings would have been over 20K by now!  Yes it is CASH -- most cards allow you to transfer your rewards to your checking account or use it to pay on your bill.  The key is having the discipline to pay your card off monthly!
• Focus on your emergency fund.  Experts suggest that you have at the minimum $1000 in an emergency fund and eventually enough saved to pay 3-5 months of bills just in case you lose your job or something else happens.  What is your plan?  If you are having financial struggles, you are not going to wake up one day and be able to put $5,000 in savings. Be realistic and plan. You can literally build a fund without much effort.  I'm not asking you to give up your cell phone, turn off the heat in the winter, or never splurge on  your favorite smoothie. All I ask is that you treat deposits into your savings account like any other bill.  Pay it regularly.   Consider setting up a recurring deposit of $10-100 weekly or monthly  whichever you can afford,   With 52 weeks in a year, saving $50 a week can be $2600/yr.  That definitely beats having a balance on a credit card and making the minimum payment.
• Save for a vacation, before you take one!  Decide a year in advance what you want to do or where you want to go.  Take the estimated cost of your vacation and divide it by 12 to get the monthly amount you need to set aside to meet your goal.

As you plan your 2018 budget, keep some of this in mind. Don't throw your hard-earned money out of  the window!