Getting a Credit Card: What to Look Out For?

My father used to tell me that credit card debt is the single most potent killer of any financial success you can ever dream of having. With interest rates in the region of 18~24% on outstanding balances, its no surprise why banks make it so easy for you get a card that is beyond what you can maintain. While some countries prevent this from happening (getting a card you cant afford to maintain), others countries don’t.

On the other hand, if you’re smart, you can use your credit card to make purchases and earn reward points, while dutifully paying back the full amount every month. At the end of the year, you can redeem your rewards points for vacations and gifts. How cool is that?

So, when looking out for a credit card, consider the following items:

Purchase Rate

This is the most important number you have to bear in mind. When you don’t pay the full amount back at the end of the purchase period, this is the interest rate imposed on your outstanding balance. So assuming you bought a laptop for $2000 and an expensive LED TV for $3000. But you only pay off $1000 at the end of the purchase period. This leaves you with a balance of $4000. If your purchase rate is 20%, your monthly interest is (annual interest / 12 months) x outstanding balance. So at the end of the month, the interest charged to your card is 20/12 = 1.67% x $4000 = $66.8. So the total balance of your card at the end of the month is $4066.8.

You are by law, required to pay off the minimum amount every month. Some institutions require you to pay a minimum of 5%, so check with your bank. Assuming you are required to pay a minimum of 5% at the end of the next purchase period. The interest charges will be $4066.8 x 1.67% = $67.9 or $4134.7. The minimum 5% repayment of $4134.7 would be $206.74. If you continue to make only the minimum payment every month, you would only finish paying only after 19 years and in the process, pay the bank a total interest of $1921.2.

However, if you paid $250 every month instead of the minimum payment, then you would have finished all the repayments within 1.5 years and only paid a total interest of $650.

Annual Fee

Try to find a card with a low annual fee. Some cards have very high annual fee in return for a lower purchase rate. Dont get fooled. Find a good balance. And get a card that will allow you to offset your annual fees with points.

Interest Free Days

Your card should give you at least 45 days from your date of purchase to make a repayment. This should give you enough time to pony up the cash for repayment.

These 3 items should be at the top of your list when finding a credit card. Don’t be pressured to accept any credit card offers from banks without sitting down and comparing these offers to see which one suits you the best.

It’s your money and your life. Invest the time to find a card that will work with you.

Best Savings Account in Australia

Being new in Australia, I opened up an account with a local bank at the advise of my company. However, after being in this country  for some time now, I realised that many other banks are offering better interest rates than my bank. At the time of writing, these are some of the banks and their rates. If you do got for any of them, do your homework by double checking the plans and rates before signing up as their rates might have changed by then.

I have listed them in this sequence – Bank Name, Product, Interest Rate

1. Bankwest, Regular Saver, 7%

2. UBank, USaver, 6.51%

3. ANZ, Progress Saver, 6.36%

4. Bankwest, Telenet Saver, 6.15%

5. AMP, EasySaver, 6.0%

How Do I Get a Free Credit Check in Australia?

If you’re living in Australia, you would have known by now that banks and other institutions might do a credit check on you before they decide to offer you their services. Also, if you intend to buy a car or a house, having a good credit report allows the financial institution to lend you money at a lower interest rate.

When an institution does a credit check on you, they will typically get the following information:

• Details of credit providers which have previously accessed your file
• Public record information such as bankruptcy acts, summons (AU only) and judgements
• Overdue payment information (default data)
• Identification details (full name, gender, current address, previous two addresses, date of birth, driver licence number and current employer).

More options:

Salary Packaging

Check and see if your country allows salary packaging. I know Australia allows for it while Malaysia doesnt.

Salary packaging is buying or leasing an asset with pre-tax dollars. That is when your salary arrives at the end of the money, you can use it to buy certain things or make certain payments before the balance gets taxed by the government.

For example, in Australia, it used to be laptops, cars, mobile phones and education. But laptops were removed from it because rich individuals manipulated a loop hole in the system to get their laptops for free. What this means is that you pay your monthly mobile charges, your car loan repayment from your gross salary (before tax). Only the balance amount is then taxed.

Depending on the country you’re in, some allow additional superannuation, novated leases, airline lounge membership, computer software and home office equipment, development travel, professional memberships, newspaper and periodicals subscriptions, and salary packaging advice.

Consider using salary packaging if you’re in the high tax bracket. Every dollar saved is worth it.

Time Management

This is another of Randy Pausch’s talk on time management.

Every second counts when you know you’re dying…

If the one-hour video is too long for you, or if you prefer to read what he wrote, check out his book, The Last Lecture

Track Your Expense This Week

For this week, just this week, track your expenses.

If you’re using an Android phone, download a Daily Expense software. The Apple iPhone should have something similar. Use this app. Your phone is always with you. There is no risk of forgetting what you’ve spent at the end of the day. Whenever you spend something, open your app and record it.

After a week, look at your expenses and look where your money goes. This would give you a snap shot of where your money flows and the percentage of each expense category.

Next post we will look into getting organised.

Maximize Your Money – III

1. Go for quality

This will sound contrary to saving money but buying quality products will save you in the long run. Instead of opting for cheap items that require replacement every 2 years, go for quality items that will last for atleast 10 years. While it may cost slightly more during the initial purchase, it will be cheaper in the long run. One thing to remember in prolonging the life of any equipment – continuous maintenance is essential to keep any equipment running well in the long run.

2. Cut down on weekend entertainments

While we all need to chill out after a hard week’s of work on Friday, do we really need to spend Friday night, Saturday night and Sunday night at the pubs? Limit your weekend entertainment to a certain night and rest at home the rest of the weekend. You not only will get adequate rest but you stand to save some of your hard earned cash.

3. Exercise

Exercising helps reduce your overall health risk. Exercise makes you sweat and sweat cleans your skin and allows your body to ex foliate dead skin. Exercise also helps reduce your stress level, making you work and play better. Basically you’re more fun and sexier to be with. Exercise makes women glow and men tough, and reduce your visits to the doctor.

4. Buy Off Season

Buy you winter clothes in spring – stores will want to get rid of their inventory at a lower price rather than store them for another year (storage cost money too). Dont always go for the latest gadgets – electronic gadgets become outdated after a year or so, so be patient and wait for 12 months and you’ll be able to get the updated version the device at a much cheaper price.

5. Credit Cards

If I havent told you this before, I’m telling it to you now. Dont cancel your credit cards. Having more than one credit cards but not spending a single cent on it looks good on your FICO score. It shows the banks that you have a good line of credit without the associated debts.

But what you need to do is to decouple your card from Paypal or other online merchants. Having your credit card stored in these services makes it very easy to spend online and this is bad. So decouple them!

10 More Ways to Save Money

Here are 10 more ways to save some money. I am not suggesting being a miser, but learn to be frugal.

1. Give personal gifts rather than splurging on an expensive gift. A handwritten card can mean a lot more than an expensive camera.

2.  Entertain wisely, rather than expensively. A quiet dinner at home with friends is much cheaper and more exciting than a $100 dinner at a fancy restaurant.

3. Always ask for a discount. You’ll never know when you might get one.

4. Experiment with “house brands”. Some of them are as good as the original brands, especially those for house cleaning.

5.  Spend paper money. This helps to rein in your expenditure. Spending on plastic is the classic way to kill yourself with un-necessary expenditure.

6.  Use cold water to wash your clothes and lower the temperature on your hot water shower. Your clothes will last longer, the colors wont fade and you’ll save a bit on electricity and heating.

7.  Want to save on long distance phone calls. Learn to use Skype. It’s free and all you need is a computer and an internet line, which you already have if you’re reading this.

8.  Opt for interest free bank accounts. Never go for accounts like HSBC’s Powervantage account which charges you a monthly fee of $10 when your balance goes below $2000.

9. Buy in bulk. Cereals, dish washing fluids, detergents and other house hold items can be bought in bulk from discount stores which add up to quite a bit of savings annually.

10. Switch all the lighting to energy saving bulbs. Energy saving bulbs, while they may be pricier than normal bulbs, will repay your investment after 18 months.

11. Inflate your car tires to their correct pressure and remove unnecessary items from your car booth. This makes your car lighter and consume lesser fuel.

10 More Ways to Save Money

1. Never go to the grocery when you’re hungry. You will always end up buying more than you’ve budgeted for, and more often than not, buy things you dont need. Get something light to eat before going to the super market.

2.  Buy items on Sale or during off season. For example, buy a winter jacket in June.

3.  SLEEP on all your purchases, whether big or small. This avoids impulse buying and helps you to know whether you really do need the purchase.

4. Eat out less often. Eating out daily is an expensive affair. “Take out” is cheaper than eating in a restaurent and “gourmet” frozen food is cheaper than take take-out. Of course, making your own lunch or dinner is the cheapest but if you’re like me and not into cooking, then order some take-out and save some money.

5.  Buy yourself a can of gourmet coffee from your local supermarket and save yourself the daily $3.95 Starbucks coffee. They taste the same, but comes with a cheaper price tag.

6. Use public transport whenever possible. It’s cheaper, environmentally friendlier and you might meet some interesting people. It also allows you to indulge in some music or in a good book.

7.  Buy used. Used items doesnt necessarily mean its bad. People sell things all the time, not only when its malfunctioning. People sell when they move or  when they want to keep up with the trend. Buying used saves you a lot of money. The time and effort spent in finding these offers are well worth it in the long run.

8.  Take a good look at your monthly magazine subscription and cancel any which you dont need. We always subscribe to more magazines than we need.

9.  Invest in quality. Spend the extra money to buy tools that will last a long time.

10. Make use of your local library, its a gem of a place for book worms like you and me.

Your Buckets for the Future

Saving every single cent to pay off all your debts isnt really a good thing in the long run. Do you really want to spend the next 10 years diligently paying of your credit card bills and others, wihtout going out for a single vacation or taking the family out for a dinner every month?

Paying off your debt is very important as the interest charges alone is enough to kill your future. But I have been around enough to know that you can have a life while managing your debt.

It’s called Buckets. And it’s simple to set up.

When you get your pay check at the end of the week or end of the month, divide them into your buckets. For example, you could have the following buckets:

Myself – 10%
Rent and Utilities – 35%
Credit Card Debts – 20%
Vacation – 5%
Dinner – 5%
Misc – 25%

The 5% that you allocated monthly towards the vacation and dinner bucket will build up to a point where you can take yourself or your family to a dinner every month or two; or a vacation each year.

By allocating your funds in this manner, while still reducing your debts, allows you to have a QUALITY life. Yes, reducing debts is your main priority but this shouldn’t stop you from living a life. By not over spending and diligently filling your buckets every month, you can live a good life while being on the path of financial freedom.