Tag Archives: credit card

More on Spending Practices that will put you in Debt

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USING CREDIT CARD INSTEAD OF CASH

 

There are some who have the cash to pay for their purchases but use their credit cards because it is cool.  Besides, there are points to be earned on the credit card.  Very good! Just make sure you set aside the cash to pay for the credit card statement on due date and not later.  Trouble will arise when you forget that you used your credit card and you see the cash available in your wallet.  You use the cash and are scrounging around payment on due date.  Worse, you keep using the credit card and not adding up your individual purchases.  Before you know it, you have overspent.

 

There are also more and more people using their credit cards for automatic payment of their utility bills and other monthly expenses.  What happens is that you don’t pay for your bills with cash as you normally do and the remaining cash is what you have available for your other expenses.  You are now increasing your risk of not controlling your expenses.  When your credit card bill comes probably several weeks later, you will be in for a big shock.  If you don’t pay your credit card on time, you will be in credit card debt and the interest and penalties will be horrendous.  It is always better to just use cash if there is serious risk of overlooking payment in due date, or worse, if you end up not being able to control your use of credit cards.

 

DO YOU REALLY NEED A VACATION?

 

Vacations are wonderful and good to recharge your body spirits.  It is however funny sometimes that so much is programmed during a vacation that you end up needing another vacation just to recover.

 

It is good to program your vacation especially from the financial point of view.  Unfortunately, some vacations are taken as an emotional outlet just to get away from reality because of a big problem.  Because of the emotional issue, the financial burden of the vacation is forgotten and credit cards are used.  That is a big mistake.

 

Never ever use your credit card to pay for a vacation unless you really have the cash actually set aside to pay your statement on due date.  During the vacation, try to leave your credit card behind and just bring your budgeted cash so you are not tempted.  When you are with family, make sure each one understands the budget and strictly follows it!

Spending Practices that will put you in Debt

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Some people have ways of thinking in relation to spending that could lead them into debt.  I will be discussing with you some of the spending practices of some people that lead them into always being short of cash and living on credit card or in deep credit card debt.  In analyzing these practices, I want to emphasize the principles I have been discussing through the years.  Read on and see how you can be more aware so that you avoid the pitfalls.

Bonus – Let’s say that you received a bonus of P10,000. What would you do with it?  Most people would not only spend all of it.  Apparently, many will even use it as a down-payment for an item, and unfortunately, the installment payments for the item bought is usually more than their budget. Normally, a budget is just enough for your regular expenses.  You should not add to your regular expenses without a permanent addition to your regular income.  A bonus is not regular income and after receiving it, there will be no more to come in the near future.

If you are making a budget for your regular income and expenses, all the more you must treat a bonus with some analysis and planning.  Remember the First Principle is “Pay Yourself First?”   I ask you to follow the formula “Income minus Savings equals Expenses.”  A bonus is income as well.  You must still follow the formula.  Set aside 10-20% of the bonus as your savings.

You could also give yourself and your family a little treat but make sure it is something modest and commensurate to your regular income.

Discuss the bonus with your spouse and/or your family.  What are your priorities to help get the best value for the windfall.  Since the amount is limited, don’t immediately think that you can use it for a new type of expense that could balloon to something more than you bargained for.  Rather, maybe it is better to use it to help you in a regular expense or even better, put it all in savings.

The bonus is the only additional income you have. Unless you get a salary increase, you do not have additional money to pay for additional regular installment payments.  Never buy an item that will require you to make regular installments that you cannot afford.