Budget Sense

Here at Budget Sense, we almost always recommend against credit card usage, unless in extreme and desperate situations.  But of course, credit cards can come in handy in certain situations. But they can also be abused by being used to buy things that just don’t justify the purchase.

What are some foolish ways of using your credit card? let us go through them and explain why they don’t make sense from a financial budgeting and debt point of view:

Using  a Credit Card to buy something expensive when unemployed
When you don’t have a job, the last thing you should think about is buying expensive stuff, let alone using your credit card to make the purchase.  Sure, you may not have the money and is easier to put it all on your credit card. But during a time of need and no steady income flow, the last thing you want to do is buying something you don’t need and probably only want. Put it off for now, and buy it when there is a steady flow of money coming from a stable job. Or, you can start saving for that big purchase, little by little.

Using one Credit Card to pay for another
This is a classic one, and most of us are probably guilty of doing it one time or another. This is like covering the a hole in the ground with mud from another hole you had to dig right next to it.  Some resort to this tactic when one credit card is completely maxed out and is due, while the other has a zero or little balance to speak of, so makes the transfer easier. But regardless, in the long term, this doesn’t help and will probably lead to both cards being maxed out and costing you a lot in interest payments.

Buying things when you can’t even pay your bills
So you can’t even pay off your bills on time, yet you are using your credit card to buy a new pair of shoes, a new gaming console etc? Your priority at this time is to save and come up with some money to pay your due bills and not use a credit card to buy things that are not necessary.

Using your credit card like an ATM machine
This is generally referred to as  “Cash Advance.”  This is another classic example and one of the worst.  That is to simply withdraw cash from your credit card, where the interest rate can be ridiculously high. Again, unless you are in extreme need, it is best to avoid this at all costs.

Using your credit card until you maximize your balance
Some people will keep using their credit card until they have maxed it out. It is like they can’t stop until they have exhausted their balance and there is no room left.  The idea is not to maximize your balance, but rather to keep it to a minimum or even zero.

There are many more examples of foolish ways to utilize your credit card, but this list simply demonstrates some of the most common ones.  A credit card is a way for you to buy something and pay for it later, ideal for situations when you don’t want to pay right away. But to use it to pay for something that you know you won’t be able to pay it back later, doesn’t make financial sense.  Credit card companies have done a great job in conditioning us to use these plastic cards like some sort of bank where you can purchase and spend with no second thought about future implications. It is time to rethink that and treat your credit card as you would your most sacred and dearest things to heart. If you don’t respect a credit card, you will end up paying dearly and probably for a long time to come.

Although a million dollar is not what it used to be, I say a million is a million, and it still sounds cool and very cha-chingy!

Becoming a millionaire is still a dream for millions of us in this country and everywhere else you go-well, exception are those countries whose smallest denomination money starts at a million!  There is just something very cool about the word. If you were to ask people about having $999,999, I bet you it wouldn’t sound as cool as $1,000,000 even though only one dollar separates the two.

OK, so if having one million dollar or more is very cool, the next question is, how do we get there? Can a salaried 8-5 job get you there in one lifetime?

Now or later?
You can get to a million dollar using a short term strategy or a long term one. One that is very aggressive and ambitious or one that will take decades and requires a lot of patience.  If you want it now (requiring few months or years), you can be sure of one thing: your current 8-5 simply won’t cut it. You need something that can multiply your money quickly, such as an investment or real estate.  Once you make your first $100,000 for example, it will be much easier to multiply to $200,000 and so on… 

Individually or with a partner?
Are you doing this by yourself or with the help of someone else, say a business partner, a wife etc.? Certainly, having someone else beside you will make your job a lot easier, but at the same time, it will mean sharing that money with that person. So you may not be or feel like a real millionaire after all.  But as a challenge, having a business -or life- partner will make the job easier.  If you have a spouse who has a good job, you can then focus all your attention on your own high return-and high risk-investments, without having to worry about feeding the family and paying the rent.

How bad do you really want it?
If you ask 100 random people, almost everyone will tell you that they would love to be a millionaire. But the real question is, which one of these 100 people will actually put the effort to peruse the dream of having one million dollars or more? it is one thing to want it and quiet another to want it bad and work to get to it.  Unless you are lucky and win a lottery, the only way to get to one million is through hard work, persistence, patience and a very passionate drive to achieve this at almost any cost!

Can I get some luck with that?
If you ask or read stories of how some people got to becoming millionaires, and in addition to all the other traits they possesses, they generally had some luck on their side. Whether it is that deal that fell at the perfect timing, landing the perfect investment opportunity, or being at the right place at the right time, luck had a big part to play in helping them get to the top. Are you a lucky person? better yet, do you think luck is on your side? I know, some of you are probably thinking “I can’t just create my own good luck” which is generally true. But if you come to think about it, you can create some luck-or at least a perception of good luck-by thinking positively.  In other words, you create the ideal conditions or environment for luck to be on your side.

The cool thing about getting to a million dollar is that you can get to the next million a little easier. The money just multiplies easier than before.  But as I have already explained, getting to that million takes a combination of things, most of which you may already have, but all depends how you apply them.

Take it from me. I am not a millionaire, but I am working to get there. Hopefully in this lifetime. Ok, time to go check my lottery ticket for Friday’s draw.

I have an admission to make and please stop me if you have been guilty of this same feeling or thinking as well: there are times when I don’t feel an extreme rush or urgency to pay off my credit card balance simply because there is no visible harm being done. Accumulating interest rate? who cares, it is only a few bucks every month. Bad credit? that is another thing we forget to worry about just because we don’t get to see its impact on a daily basis. Worse yet, some of us have stopped worrying about paying off our credit card debt because what is the point, sooner or later, we will max it out again.

So might as well just use our credit cards as we fill up our cars when the gas is expensive: simply top it up and pay as you go. Never filling it up.

Welcome to the new generation that never worries or loses sleep over their credit card debt. It is never a bad thing when you don’t let stress get to you, but in this situation, it may be good to feel some stress and urgency to pay off your credit card debt (and other debt for that matter.)  I am sure credit card companies love this new generation: it will just mean more interest being paid.

If you don’t pay your credit card balance on time and still not feel any guilt, there is something wrong. Sure, you may not have the money to pay it, but that doesn’t mean you should be OK with the situation.  If anything, you should have a plan in hand to pay off your credit card balance or at least reduce it to a manageable sum.

If credit card debt doesn’t bother or concern some people, it means that taking on big items that they can’t afford, will probably not bother them either. Be it a brand new car, a big house or a trip out of nowhere to a place out of this world.

This is akin to a society where more and more people are not bound by the rule of law and order or the police. In such a society, chaos and problems will ensue and a whole collapse of the system is possible.  The same applies here, when more and more people are no longer bothered by their credit card and other financial obligations, and in fact are fine living with it. Such a society can’t be sustained and will eventually come down crashing. It is already happening in one form or another in the US.

Pay off your credit card debt and save yourself hundreds if not thousands in interest every year. So why refuse extra money that can be in your pocket?

If you don’t want to be bothered by your debt, there is a simple thing you can do: pay it off and stop using them as much as you can. Kill your debt before it finishes you.

Are we about to be hit with another recession and a global economic slowdown? many signs are leading us to believe this may be imminent.

Regardless of what happens, it is better to be ready for something that won’t happen than not be ready when something bad does happen.

You would like to think that people have learnt a lot from the economic downturn of 2008 and 2009, but I don’t think that to be the case.  People have a very short memory.  People are spending more than before, accumulating more debt and generally not caring about the state of their financials.  Sure, spending is generally good for reviving an ailing economy and to bring it out of recession, but we are talking about healthy spending and not credit card and borrowed spending!

To be ready for whatever comes, here are some of the ways to weather any upcoming recession or a downturn in the economy.

Tighten your spending: this is the easiest and most obvious one. This is one that you have full control over. Tightening your spending helps in saving you money that you will need in a rainy day. It will also help you get used to a frugal life should things get hard later on. And last, reducing your spending will mean you will only have to spend on things that you need, and avoid maxing your credit card and loans on things you don’t even need nor want-you buy them simply because you think it is cool or have been tricked by promotions and advertising.

Time for a budget: hey,  there is that ‘budget‘ word again! Surprise surprise! Well get used to hearing it over and over until you either leave this website for good or finally decide to give up and create one.  A budget, whether in good or bad economic times, makes a lot of sense. But when it comes to a downturn in economy or even a recession, it will help you prioritize your spending and purchases.  When money is tight, the last thing you want to do is spend it blindly without any accountability. A budget will be your guide through tough times.

Solidify your Job and Networking: So you have a job now and you think your position is very secure and have nothing to worry about? well tell that to all the millions of people who were laid off from their jobs during the recession, many of whom had thought their jobs were very stable.  Like a hurricane that sweeps through a town and doesn’t care about what objects it encounters, a recession is the same: no matter how much seniority or experience you have, when a company decides to lay down the axe, you could easily be let go. If anything, companies will try to save as much money as they can during a bad economy which means firing and laying off those that make the most money. Conversely,  if you have the least seniority and experience in a company, you could be the easiest and cheapest human asset they could let go without feeling a pinch to the operations of the company.  The point is, during a recession, anyone is vulnerable to lose their job.

This requires that you solidify your position at your current job and enhance your networking reach. That is, make your position as recession-proof as possible. Make yourself a very valuable commodity and asset to your company. If what you do is general and doesn’t require a lot of analytical thinking or specialized skills, you may want to learn something that is more specialized and precious to the company’s operations.  For example, if you are in an IT Help Desk doing general troubleshooting, you may want to look into that position of troubleshooting ‘servers.

Strengthening your networking reach and circles is also crucial.  You don’t want to lose your job before you start networking with people to find a job. You should build and grow your network while you still have a job! Make use of all your current coworker and other contacts you deal with, get their contact information etc.

So while it may seem like there is nothing you can do to weather a recession storm, there actually is like we outlined above. The key is to be ready and not live like there is no tomorrow.

Unless you have planned for it, are very organized and disciplined, a trip to Las Vegas could be one of the worst things you can do to your budget.

I am one of the few lucky one(or maybe smart is the right word) that planned for this trip, almost to the penny.  That is, despite all the temptations of Sin City, I was able to deflect any damage to my budget by simply being organized and having planned my vacation budget beforehand.

But like I mentioned, this is Las Vegas and there is so much to do, see and dine that your plans may not go as planned when on the ground (or more precisely, the strip!)

That is almost what happened! I still stuck to my budget, but it didn’t go perfectly as I had planned it. In other words, although I didn’t spend more than what I had budgeted, I ended up spending money on things I didn’t plan to buy and vise versa. If you have been to Vegas, you know how it goes: you see so many things that you like, and given the environment, you end up getting these things and not worrying about money. It is like when in Vegas, it is OK to spend your money on anything that you see and like. That is some some clever marketing by the city and its casinos.

In my case and the three family members that were with me, we tried to stick to the plan. For example, we had already bought tickets to the show ‘Mystère by Cirque du Soleil before we even got to Vegas, but while there, we came across other shows that we really wanted to see. But with 4 of us, it would cost us anywhere from $300-400 to watch even one extra show. That is a lot of money and could have easily taken a big chunk from our vacation budget.

One obvious mistake we did-not me personally but the family members with me on the trip-was to shop in Vegas, and in more than one mall. Most of the items that we purchased are available locally and even cheaper in most cases. Yet for some reason we thought shopping in Vegas is cool enough and worth the price.

As for dinning out, we went all out sometimes and refused to just go for the cheapest options, and that cost us a fortune at times. But overall, we balanced it pretty well. At the end of the day, it is a vacation and one of the ways to enjoy it is to eat at some nice and upscale restaurants that offer exceptional food and settings.  It is part of the overall experience. You just can’t experience the beauty of Las Vegas without trying some of its exceptional and signature restaurants.  But if you don’t care about this aspect of your vacation, then you can settle for the more affordable fast food options.

This is not to suggest that you should be cheap while on vacation. To the contrary, you should spend and enjoy your time, after all, it is your escape from the routine of everyday life. But as per our ‘principles of successful budgeting and finances’,  being efficient and organized with your money is different from being cheap!

By the end of this trip, I unpacked my stuff and collecting all my leftover money. Lucky for me, and thanks to my ability to spend an insignificant amount on casinos, I actually had some money left. This is money I will be able to transfer to my savings or pay some bills.

Last, I believe it is important to mention how I saved for this trip: I basically employed most of the points from an earlier article I had written about ‘how to save for large purposes’ as well as from this about the same concept.

This was an unbelievable vacation, and although it was my first time visiting Las Vegas, it certainly won’t be my last. And now that I got familiar with the city, its hotels, restaurants, shows and other venues, I will be even more efficient with my vacation budget the next time I visit Sin City.