finance

(almost) purchases

I’ve been itching to buy new clothes these past few days, especially since I’m trying to grow a minimalist wardrobe.  I’ve even gone as far as going into stores and having clothes in my hands as well as getting to the “checkout” page for online purchases.  But right when it’s time to whip out my credit card, I either put the clothes back or exit the window.  And that’s the beauty of tracking your spending.

If I wasn’t acutely aware of how much money I’ve already spent this month, it would’ve been so easy to buy all the clothes I’ve been eying.  But because I AM aware, every time I was about to make a purchase, I’d ask myself “can this wait until next month?”  Of course it can.  Even though I’ve purged so much of my clothes that I’m literally wearing the same outfits to work week after week, waiting another week or two before adding more clothes to my wardrobe won’t kill me.

I used to use the balance of my checking account to help me determine whether or not I should cut back on spending.  But now I use the monthly balance between my inflow (income) and outflow (expenses) as a reference point instead.  It’s a more accurate way to see if you’re really “spending less than you earn.”

finance · personal

T Minus 9ish Weeks

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I had a rude awakening this morning.  I realized I only have about 9 weeks left before my CFP exam, which means I am either really behind on the 12 week self-study schedule or just barely caught up on the 8 week self-study schedule.  I want to kick myself for not doing a weekly countdown sooner.  But maybe this is just what I needed to really start buckling down.  After all, my career advancement totally kind of depends on it.  No pressure.

finance

Use Your Credit Card Like a Debit Card

I’ve never been much of a borrower.  Even as a kid.  I remember if someone had a toy or something that I wanted, I’d always ask if I could have it.  The typical response would be “No.  But you can borrow it.”  I didn’t like borrowing because I didn’t understand the concept of having something that wasn’t yours.  I mean, wouldn’t you get attached to it and not want to give it back?  Now that I’m older, I understand that there are times when it make more sense to borrow rather than purchase (i.e. when you need snow chains for a one-time snowboarding trip when you live in Southern California, books you’re not sure if you’ll like, etc.)  But overall, I still avoid borrowing as much as I can.

With the exception to education, mortgage, car and medical emergencies, I don’t really believe in borrowing money.  So racking up credit card debt to pay for things that I want was never much of an issue for me.  To the financiers reading this, I’m not talking about borrowing for investment purposes or buying stocks on margin or anything as advanced as that. 

I got my first card when I was about 16 years old.  It was a debit card.  I easily understood how it worked.  Your bank account has money.  When you use your card, money gets taken directly out of that account.  It was an easy way to track your expenses and it was safer and more convenient than carrying cash.  The principle behind it made sense to me.  So when I got my first credit card around the age of 18, I used it with the same mentality as I used my debit card – I only spent what I had (or less…much much less).

Several years and credit cards later, I still use that methodology.  With multiple cards, several bills to keep track of and a lot less leisure time, staying on top of this has gotten a little trickier.  In order to keep it up, I pay my all my credit card bills about once a week (usually Tuesday or Wednesdays so I have a balance of “0” before the weekend).  This is to ensure that my checking account is a relatively true reflection of how much money I really have.

Some people would ask why even bother having a credit card at all? Why not just use cash or a debit card all the time?  Two answers.

1) To build your credit.  Although if you don’t ever carry a balance, I’m not quite sure how much of a difference that would make on your credit score.

2) To collect rewards!  I used to use my rewards for getting Starbucks gift cards.  But now I use it to pay my credit card bill.  I used to have the mentality that “if I’m going to get a reward, I want it to be for something that I enjoy” and getting credit on your credit card didn’t feel that enjoyable to me.  But I changed my mind after I got my Chase Freedom card.  Since Chase gave new card holders $200 back in rewards, when I finally claimed my points for the first time, I think I had like $300 worth of credit I could use.  Getting $300 worth of Starbucks gift cards just seemed like such a waste at that point.  So I used it to pay my next bill instead and it made a big difference in my checking account.  I decided from then on, I would exclusively use my reward points for that purpose.

For people who want to get rid of minor credit card debt (less than $1,000), I recommend using the method that one of my former roommates used:

1) Stop using credit cards!

2) Use only cash or your debit card instead for new purchases.

3) Every time you get a pay check, use half of it (or some other designated amount) to pay off your credit card debt.

4) Keep doing this until your entire debt has been paid off.

5) After you debt has been paid off, you can start using your credit cards again as long as you use it like a debit card and only spend money that you have.

If you have a significant amount of credit card debt you want to get rid of, I suggest reading Total Money Makeover and following the get-out-debt recommendations there.

Disclaimer:  Original personal finance entries are of my personal opinion.  I am not a financial expert (though I am in the process of getting my CFP).  The advice I give is very general so it may or may not be the best available option for your unique situation.

finance

Pay Yourself First

I’ve been really inconsistent with blogging about personal finance and I realized last night during my discussion with Shaina that it’s because I’m always trying to blog about what I’m learning and what I want to do versus things that I already do.  Well starting today, that’s going to change.

A really big part of personal finance that I started doing long before I even knew there was a term for it was pay myself first.  Paying yourself first means whenever you get a paycheck, put money in your savings account before you do anything else.  And yes, that means before you pay your bills, before you go on your shopping spree, etc.

It may sound counter-intuitive but it works!  Almost every finance blog, book and adviser can attest to this.  You are much more likely to reach your savings goal if you approach saving with this method versus paying all your bills and living expenses first, hoping to have money left over to save at the end.  It probably has something to do with the psychology of will power.

Anyway, whats always worked for me is deciding on an amount I want to save, 30% of each paycheck for instance, and then trying it out for a couple of months.  If I see that I’m cutting it close at the end of every month or having to frequently borrow from my savings account, I reduce the amount to 25% and I’ll keep adjusting it until I find an amount that I can do without but still live comfortably.  Every time I get a raise, the first thing I do is increase that amount.  I also put my bonuses and my tax returns in my savings because this is money that I’ve already gotten used to not having.  I find it more sustainable to increase my standard of living gradually, while giving my savings account a nice boost during these periods of surplus.