Credit Cards

Why do I have credit cards? I used to own two Mastercards, one of which gives me the opportunity to earn miles because I love to travel. My mastercard has now earned me enough miles to fly me to Europe via Northwest. Since I am paying for an annual membership for my second card which is also a mastercard, I decided to discontinue it and applied for a Visa card which gave me a free gift certificate of roundtrip domestic travel via Asian spirit. This Visa card also waives the annual membership fee if you meet the minimum amount charged to the card. What do I charge with my credit cards? Almost everything that I have to pay cash for anyway: groceries, fuel, tuition fees, pre-need premiums, school and office supplies. If I can swipe it with my card, I will... for the points. I just have one rule for all my credit card swipes --- I pay everything in full at the end of the month.

How do I keep track of my credit card expenses? I always keep all receipts. I have a separate envelope for my cash receipts and another envelope for my credit card receipts. I set aside my cash payment for the credit card even before the monthly bill comes in. As soon as I have put aside cash for a particular transaction, I write "ok" on the credit card receipt. This way I am able to monitor which receipts have been "funded" with and which are still due. All the credit card cash payments are then deposited to a checking account. The money in that checking account is considered "spent". So when the bill comes in at the end of the month, there is a standby fund in the checking account which I just conveniently transfer for the payment of my credit card bill. No matter how huge the amount is, I know there is fund for that because I keep track of the receipts and have "okayed" these with the cash payment.

So what is the important lesson here? When you swipe your credit card, make sure you have the equivalent cash to pay for that particular transaction and set that cash aside immediately to a checking account. At the end of the month, all the receipts will have that "ok" sign on it and you can pay all your transactions with peace of mind. This way you do not get into huge credit card debts because of the interests incurred by unpaid transactions. At the same time, you are able to benefit from the freebies that your card is offering you.

Wealth Diagnosis and Plan

You should have done the SALS and PIES inorder to get a good diagnosis of your financial status. Do you have a positive net worth or are you blinking on the red light? Learn to be very honest and don't make excuses if you see yourself on the negative side of the coin. The first step towards financial freedom is knowing where you are and knowing where you are going.

Having known your financial status, you should list down your financial goals. Make the goals specific and time-bound. For instance, if you are buried in credit card debt, make it your goal to get out of debt in say, two years. List down your action plans such as consolidating all your credit card bills into one credit card company with the lowest interest rate, paying off that credit card with a fixed amout every month, refraining from using the credit card unless there is a cash equivalent that can pay for the purchase, and curtailing all wants and listing a budget per month.

If on the other hand, you are the type who is disciplined enough to set aside money for monthly savings, then part of your goal must be to define what this money is for. Is this for retirement, for downpayment of your home, for your wedding? Depending on the time horizon, you can classify your goals as short term (0-2 years), medium term (2-10 years), long term (more than 10 years). You could then decide where to invest this money depending on the time horizon when you would be needing it. For the money that will meet a short term goal, put it in certificate of deposit or time deposit, money market fund and short term securities. For money that will meet a medium term goal, you can choose to put it in bond or balanced fund. For money that you will not need until after ten years, you can choose to invest in equities and stocks, real estate or your own business making sure you choose the right ones in order to benefit from greater yield. Of course, you should always remember that the greater the yield that you foresee, the greater is the risk for such an investment.

Part of investment planning is to know the percentage that you put in equities, bonds and balanced funds. If you are young and have the luxury of time on your side, you can choose to put 60% or more of your assets in risky investments such as equities that will give high yield because time will give you the chance to recover losses if it happens. If on the other hand, you are about to retire, do not jeopardize your financial status by investing your retirement fund in the stockmarket hoping to make it double in a year or so. You may succeed but there is also a big chance that you will fail. You cannot take such a risk at this point in your life unless you are willing to work for another decade or so.