Posts Tagged ‘money’

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Careful use of credit cards

May 14, 2009

In the last few weeks Kiwibank have been pushing debit cards hard. Debit cards are like an ATM card for an ordinary bank account with a number that works for online credit card transactions, so you can use them to buy online and the money comes from your account balance. They do have some handy features, but I won’t be getting one.

I use my credit card to wring a little more interest out of the bank. I put every regular expense I can on my credit card, and then pay the card off in full, so that my money is earning interest in a savings account while I am charged nothing for the credit card. There are no electronic transaction charges for my credit card either.

My main credit card has a very small limit, so I can’t really get into trouble, either by overspending, or by fraud. I’d prefer not to have my bank account cleaned out by a dodgy online store, thanks. Whereas although I don’t usually keep large amounts in my main transaction account, there’s a small window around payday when there’s more than usual in there.

I think that if you were going to get a debit card, it would be best to have it hooked up to just one account, and to not put money in that account unless you’re actually planning a purchase.

Got any cunning credit card strategies? Thoughts on debit cards?

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Impulse then and now

September 7, 2008

I should have realised there was something wrong when I noticed that I had memorised my VISA card number. Evidently I had typed those 16 digits often enough that my fingers just knew what to do.

When I were a lad, in the 1970s, frugal people had certain guidelines or rules to prevent themselves from coming unstuck. These included:

  • leave your wallet at home;
  • don’t carry extra cash;
  • wait a day before making any unplanned purchase.

(I know this, because my parents subscribed to Consumer magazine and I read something to that effect while perusing their vast stock of back issues at the age of 9 or 10. Like Jesuit training, my dormant but recently-awakened frugal instincts probably owe their hardiness to early indoctrination.)

Apparently there is research out there showing that credit cards and debit cards make it easier to spend, because we are blissfully unaware of the effect on our balance. Hence why we get caught short of funds at the checkout. How did that happen? Because we lost track of where we were.  It is much harder to accidentally run out of money in a cash-only world. (Unless you have so much cash, burning a hole in your wallet, that it seems as though it would be hard to get through it all).

That’s bad enough, but unfortunately, online retailing has greatly reduced the psychological barriers to unwanted spending even more. It is only recently that I have learned to stop and wait and introduce a cooling-off period before typing in the fateful 16 digits.

I now make it a habit to do a few things before I buy stuff online.

  • I ask myself whether I really need it;
  • Where comparison sites like Pricespy or Ferrit exist*, I get a benchmark price;
  • I check the second-hand price on Trademe;
  • I check my balances and see whether this will put me over my self-imposed limit for the month;
  • I bookmark the page so I can come back to it later (which I often don’t).

What are your strategies for avoiding temptation, when it’s just so easy?

*(Yeah, I know, Ferrit is an e-commerce disaster, but it is quite handy for finding out what you should pay for a blender).

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Recording every damned thing

September 2, 2008

A few years ago I was contracting rather than working for a salary, and I started keeping basic books. I used Gnucash to do it. Gnucash is a very sophisticated double-entry accounting package, but reasonably easy to learn to drive.

Ever since, I’ve been tracking my expenses in a rough and ready sort of way. I can tell you what our power bill was last winter, and for several years before; how much I spend on coffee; and all the money Infratil has ripped off me through parking at Wellington Airport. This has been easy because Gnucash can import my online banking statements, and if I assign a transaction to a category, it’s smart enough to remember who the payee was and automatically put all subsequent payments to them in the right place.

However, there is a hole in my system: cash withdrawals. Some things are easier or cheaper with cash, so I regularly withdraw $50 or $100 (big withdrawals minimise ATM fees). But up until now, I haven’t anything but vague intuitions about where it goes. This bugs the hell out of me, to tell the truth: where did that $50 go? What do I have to show for it? I don’t know.

A couple of weeks ago I got a book out of the public library*, Your Money Or Your Life. I’m going to be writing about it more in coming weeks, but for now, I just want to mention one practice from the book: diligently recording every purchase. Every one. For the last two weeks, I have been noting all cash purchases, no matter how small, down to the cent, in my cellphone. This is not as hard as I thought. I almost always have my phone on me, and it’s already become a habit. $2.90 cheese puff, $15.40 taxi, and so on.

The funny thing is, judging by my cash withdrawal rate, I’m already spending less, purely because I have become more conscious of the money leaving my wallet.

The authors of Your Money Or Your Life want you to account for all your spending for more elevated reasons than just reducing your expenses. The idea is that after a month, you categorise all your spending and then rate the categories of expense, thinking about how much satisfaction you have derived from each category. You can then make decisions about whether to rebalance or reallocate your spending, based on your new understanding. Most of us spend the biggest part of our adult lives working to obtain money; that money represents stored time; the book wants us to consider whether we are getting enough happiness in exchange for it. I have yet to complete that part of the exercise, but I will, and when I do, I’ll post about it.

BONUS LIBRARY TIP: thanks to my friend Sue, I’ve become a convert to Library Elf. You can hook Library Elf up to your library card, and then it will email you before your books are due back, thus helping you to avoid a fine. Every frugal person should use the library instead of buying books, and avoiding fines is definitely frugal. The Wellington Public Library has no reminder service at all; I’ve always wondered whether this was a revenue gathering strategy…

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A penny saved is more than a penny earned

August 27, 2008

This blog is dedicated to frugality: in other words, we are thinking about making the best of what we already have, rather than trying to get more. And yet, isn’t getting more a worthwhile goal? Why shouldn’t we put as much effort into making a dollar as saving a dollar?

There are two reasons.

First, tax. Every dollar you earn is taxable. So if you earn one extra dollar, you’ll keep less than one dollar. Maybe quite a lot less, if you earn enough. But if you save one dollar out of income which has already been taxed, that whole dollar is yours. If a few seconds of self-control save you a dollar, that’s a lot easier than working for it.

It’s worth figuring out what your net after-tax earnings per hour are. Then when you contemplate a potential saving, you can say “it would take me x hours to earn that money.” If you only think of savings at their nominal price, you’re leaving out the chunk of your earnings that goes for tax.

Second, this blog wants you to lead a more fulfilling life. A life where you only do things that you think are worth doing for their own sake. Sadly, many of the things that would get you an extra dollar demand you do things you don’t want to do. This would be the Tom Sawyer definition of work:

Work consists of whatever a body is obliged to do, and […] Play consists of whatever a body is not obliged to do.

(If you can get extra dollars doing things you want to do, you go for it and don’t let anyone hold you back).

If you have to work all the hours God sends to make those extra dollars, that’s not necessarily the best use of your time, if you have other goals than accumulating money. We all know that time is money—the corollary is that money is exchangable for time. I am mingy about the exchange rate. In this blog, we will assume that you are too.