FP Article 24
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Credit Cards
- Fiscal Vampires
by Rajen Devadason
Without frugality none can be rich, and with
it very few would be poor.
Samuel Johnson
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Receiving that first credit card has
become a rite (and some might even
say 'right'!) of passage for young
adults in our advertising saturated
era.
Yet in a sense,
credit cards are a phenomenal
invention. Through a global network
of electronic linkages, we could be
carrying one issued in Kuala Lumpur
buying a handcrafted watch made in
Switzerland at a mall in Los
Angeles. The real danger,
however, of carrying credit cards is
the 'disconnect' that often occurs
between our brain and our wallet!
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That's why I believe there are times when
misused and overused credit cards act like
little plastic vampires that suck the economic
life out of us! I'm specifically referring to
the tendency many of us have to blow our
carefully crafted budgets - assuming we have one
(and we should) - simply because an easily slid
out credit card from our wallet permits us to
make one impulse buy after another.
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This is an article on the genuine dangers credit cards
pose to personal budgeting. I hope you enjoy
reading it. But if it isn't what
you're looking for, you're welcome
to search for something that better meets
your needs. Thank you for allowing
me to serve you.
Rajen Devadason |
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The fancy term 'fiscal' is often
used interchangeably for 'finance' or 'money'.
To be completely accurate, though, fiscal refers
to a budget. So just as an economically healthy
country needs to exercise fiscal responsibility,
an economically healthy person should exercise
budgetary discipline.
The reason this article is
entitled Credit Cards - Fiscal Vampires is
to drive home our need to slay credit card debt
with as much fervour as a movie hero might
plunge a sharpened wooden stake into the heart
of Count Dracula!
Credit cards, when they are
utilised in a less than healthy fashion, suck
the very lifeblood out of your long-term
financial dreams, hopes, aspirations and goals
through accelerated negative compounding.
The Certified Financial Planner
Board of Standards states:
"Financial planning is the process of meeting
your life goals through the proper management of
your finances." If you reread that
famous definition slowly and mull over each
word, you'll notice there exists the high
likelihood of not achieving your life goals if
you mismanage your money.
The first tool you need to craft
for yourself, if you wish to wrest back control
of your financial destiny, is a soundly
structured budget. Do not begin too ambitiously.
For a start, aim for fiscal balance, meaning
your cash inflows exactly match your cash
outflows.
Once you do that, then look
carefully at each line item of your budget and
decide which ones can be eliminated and which
ones shrunk in size. The moment you put those
thoughts into action, you start generating a
cash flow surplus. Congratulations!
Over time, you may use that
accumulating surplus to first create
an emergency buffer fund,
then
save, and
finally
invest. All
these activities are linked and looped together
like a money chain.
The links of this chain can most
easily be wrenched apart by uncontrolled,
profligate credit card spending.
So, if
you have fallen into just such a trap, now is
the time to remind yourself that your long-term
financial health is far more important than any
near-term, short-lived thrill of spending money
you don't yet have, using plastic with
vampire-like traits, to buy pretty baubles you
won't care about a week from now.
The time has come for you to
fight for and win back your personal financial
destiny. The first blows you want to land on
your primary fiscal adversaries should be
delivered through a structured debt management
plan. If that's what you want to do, read this
important article to find out if you currently
are an
Intelligent Borrower or
Economic Slave.
Alternatively, carry out your personally focused
research for additional strategies and
principles to help you defeat credit card debt
either offline at a library or big bookstore
near you, or online via appropriate searches.
I wish you great success in
slaying your personal fiscal vampire by slamming
a metaphoric stake into the heart of credit card
overspending. In closing, here are 5 useful
strategies to help you do just that:
1. Eliminate unnecessary credit
cards that cost you too much money each year in
fees;
2. Stop making impulse purchases
with your credit cards. Instead, begin carrying
sufficient cash for normal expenses;
3. Recognise that carrying cash
and spending it is qualitatively different from
whipping out a credit card. Most of us find it
more difficult to spend cash, which we
subconsciously associate with 'real money' as
opposed to so-called 'play money' inherent in
credit card transactions.
4. Ensure all required minimum
payments are made each month; and
5. Accelerate payments using any
extra cash flow extracted from your newfound
fiscal discipline to pay down your existing
credit card loans. Do so in order of size, from
your tiniest credit card balance to the largest!
© Rajen Devadason
