9.14.2011

Financial Review {Two Months}

It has now been two months since we made the decision to get serious about paying off our house and getting a nest egg in place in case we're hit by those inevitable "rainy days" that come at inopportune times. We've had some moments of weakness, but overall, we're still on track with our payoff plan, so that's encouraging.


I've been thinking a lot about simplicity recently (you might have been able to tell that by the posts I've been writing), and have realized that it also extends to the area of finances. If my bills get lost in the mess that is scattered on every surface of the house, then the late fees that will be charged are, in essence, a stupid tax on me for not being organized with my bills and paperwork. For the record, in eleven years of marriage I have paid one bill late, but it has been close a few times because bills have been lost in the paperwork avalanche.

{Let's talk about credit cards}

I like simplicity when it comes to credit cards. Dave Ramsey and I part company when it comes to those little bits of plastic, though I understand that he has seen a lot of people get in deep piles of debt because of their lack of control with credit. And if you lack the personal responsibility to use them (and pay them off each month - thus saving yourself the interest fees), then by all means - USE CASH!! No rewards are worth the debt that you can incur if you can't responsibly use plastic.


On the flip side, I just got a $179 Gortex rain coat from L.L.Bean for Peter, and I used Bean Reward certificates to pay for all but $9 of it (and that's just because they wouldn't let me use my final $10 card for the $9). Over the last year I was earning Bean Rewards for each purchase of groceries or gas or household toiletries. Every month the bill was paid in full so I didn't have to worry about paying interest.

{Contrary to popular belief, responsible credit card use is possible, but...}

We only use one card at a time, which means that I don't have multiple credit card bills looming in front of me and adding up to more than what I have in our bank account. Although we have multiple accounts (which I check on a monthly basis to make sure there's no fraud going on), we pick a card and stick with it. Right now we're using our Amazon card to save points for Christmas shopping. 


The bottom line is that credit cards in and of themselves are not evil. They can be used responsibly, but it's up to us to have the self discipline not to spend more than we earn and to pay our bills off in full each month so we aren't paying a stupid tax (i.e. interest or late fees).

{And here's some free financial advice from a non-professional...}

If your credit card expenses are higher than your bank balance, and you're not ready to cut up the plastic because you want the reward points/cash, then here's one idea that might help. If you treat your credit card like a debit card - removing the amount you charge from your checkbook register - when the bill comes, the money is already "saved" to pay it because it never left your checking account. It's like the trompe l'oeil of the financial world - making your checkbook look like there is less money in the account than in reality.


Keep in mind that you are still required to maintain your checkbook and keep track of what you spend (that's where the personal responsibility comes into play), but it's an easy safe guard if you want to use credit with some limits. 

{Speaking of limits...}

Just because you have a $2,000 or $14,000 credit limit on your card does not mean that you need to use that limit! This seems like a no brainer to me, but considering the financial state of our population, apparently it's a more complicated theory to grasp than I realize. Let's say that you have a credit card with a $6,000 credit limit, but you only make $2,500 a month. Now...what is the maximum that you should put on the credit card? Let's assume some things:

1.  You have a direct payment set up through your bank for your mortgage or rent payment of $500
2.  You check out $150 from the ATM
3.  You automatically transfer $50 a month to savings
4.  You pay for your utilities with checks - approximately $150 a month
5.  Built-in buffer of $150

That means that you use no more than $1500 of your credit limit to pay for groceries, gas, and miscellaneous spending. I know, you've left $4,500 dangling out there, but you see...you don't actually have that much money, so don't look at it like it's yours. Yes, the credit card company is more than happy to lend it to you, but you're going to pay through the nose for that "privilege" and it's just not worth it.

{Let's sum up...}

In the last month we:

1. Paid two extra house payments - totally on the principle
2. Hit the half-way mark of our Rainy Day Savings goal
3. Purchased a new couch and bed frame with a credit card, came home and paid it off with an online payment

Now it's your turn! How are you doing with your financial and/or life goals? What progress have you made in the last month? Do you have any thoughts about credit card usage - agree or totally disagree with my take on them? If you've written a post about your progress this month, feel free to leave a link in the comments, or simply take the time to share your thoughts. See you next month!

5 comments:

  1. Hey Carrie, liked this post very much. We know people who live on their creditcard and pay it all off every month and I have worked for a loyalty marketing scheme where the aim of the game is to save for points and therefore benefits. Liked your tips very much and am so impressed that you've done so well on your financial goals! Makes me think we should set some solid short term financial goals too!!

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  2. Good points, I just found it helps me to just use a debit card, my wife uses her credit card, but she is way better about keeping track of things than I am. We (in theory) close on a house tomorrow, and I have the goal of paying for it in 16 months. Also, a money tool that I just started using is YNAB, (You Need A Budget) it's a well desgnied program to help track your money, and us meet our financial goals.

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  3. The comment above sounded remarkably similar to my situation. Kudos to me for realizing it came from my husband before the end of his comment :). I am also loving our YNAB software (possibly more than he does) and recommend it to anyone who tracks their expenses on their computer. On the credit card front I don't think I would like having more than one card in my name. I like the simplicity of one. The one I have I treat as a debit by setting the money aside in our account. This is more for the numbers side of my brain than self-control. I like knowing where my pennies have gone or where they have been promised.

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  4. I am with you on the credit card thing. I have a card that I earn reward points on and I use it for everything. Can't tell you the last time I actually used my debit card (I forgot the PIN if that tells you anything!) I always pay this off each month. Then I use the points to buy gift cards for Christmas, birthdays, or whatever. I even used them for an airline ticket a couple of years ago. I am working on my debt and try and pay extra on my house and student loan payments each month. Good job on taking steps to meeting your goals!

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  5. Sophie - glad you like it and thanks for taking the time to comment. Getting solid goals in place (for finances or anything else) is one of the checkpoints for us in making sure that we're working TOWARDS something, and not just aimlessly going forward.

    Hey Jonathan & Keri - great to hear from BOTH of you! :-) It was such a fun surprise to get your comments, and I appreciated all of your suggestions. Congrats on the possibly house closing today and let me know if you get it paid off in 16 months - I'd love to hear how you do/did it! Blessings!

    Rachel - glad to know I'm not alone in the credit card usage area! If you pay it off each month, those points/rewards are like icing on the cake, aren't they? Love it!

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There are more than 400,000 words in the English language. My only request of you is this: Use them wisely.

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