Let's talk about money matters this week. Our focus is personal credit cards.
Credit Card is an old resident in our world. Born around 1890 in Europe, Credit Card came out of the need to reward loyal customers by some merchants and to pay for goods and services where cash or cheques were not readily available. Credit Card became popular in 1950 courtesy of Frank McNamara, founder of the Diners Club in the United States. The first Credit card was introduced in Canada in 1952 and the first all purpose Canada credit card came to market in 1968. Today, various businesses and retailers profit from the credit card business.
Unfortunately, the credit card story is not so sweet in the mouths of a great number of consumers. Credit card debt has shattered many lofty dreams of otherwise smart investors and submerged many promising families. There was an estimated 72 million credit cards in circulation in Canada in 2009. (Euromonitor International, January 2010) and a total outstanding credit card debt of $78 billion in September, up from 76 billion in September 2008, according to Equifax Canada. (Source Toronto Star, December 2009)
Do You Really Need A Credit Card?
Agreed, a credit card could be handy when you are far away from your local bank and you have to make a necessary purchase or when the product you want is far away and you have to order the product online or some other electronic means. Besides, there is a place for using other people’s money (OPM) for business projects that are beyond individual’s financial capability and many businesses run on return-after-sales financial plans.
However, the focus of this article is not business but personal financial management and the point I seek to make is that you don't have to spend what you have not earned. Or to put it another way, don’t spend it before you earn it. Credit Card gives you access to money you hope to earn in future. It is not free money; it is a loan and loans are meant to be paid back sooner or later. To use such money as one’s own money is a dysfunctional money management practice.
Isn't it sad that many of us have already spent what we hope to earn in the next 30 years and have no choice but to keep working for the next 30 years to pay back what we have already consumed? People who live perpetually on borrowed money cannot get out of debt. That statement may sound obvious but ironically a good number of people hope to be debt free someday but are not willing to stop living on loans. The old Jewish Proverbs is still true today: "A borrower is a servant to the lender” (Proverbs 22:7). With due respect, you are a slave to your lender if you live on credit cards. The only way to set yourself free from your slave master’s grip is to give yourself an asset card and start building on it now!
If you are one of those who signed up for credit cards just because you were told you need a good credit history, the reasonable question you should ask is why you need a credit history? Contrary to popular opinions, you don’t need a credit history (good or bad) for anything other than to qualify for more debt in future. People who live debt-free do not worry about history of debt payment. Instead of worrying about credit history management, why not start thinking of asset management strategies? Or would you allow anyone to fool you into thinking that you have to have millions in assets before you need asset management plans? If you cannot manage a dime you certainly cannot manage a million.
In case you are wondering what the bible says about debt, know that it is God’s will for believers to live debt-free. God tells us to owe nothing to anyone except to love them (Romans 13:8). Owe nothing means owe nothing. To live perpetually in debt even when we can avoid it is to disregard God’s instruction for successful living and shut out our divine supplies. If you are willing and obedient God will give you power, not only to live debt free, but to create wealth (Deuteronomy 8:18)
A Fresh Approach: Get Asset Card
One of the best decisions you will ever make about your money as a young person is to give yourself an Asset Card; a portfolio that includes your net worth after all your liabilities. While a Credit card gives you power to spend what you hope to earn in future, an Asset Card gives you power to enjoy what you have already earned. Unlike credit card, you don't need anyone's approval to get asset card. It is what you give to yourself as no financial institution will issue you one.With Asset Card you own all you enjoy and enjoy all you own but with credit cards you owe all you enjoy and cannot truly enjoy what you owe.
It is important to note that building yourself an asset card is not easy but it's worth the effort. Our difficulty with building asset cards lies in the fact that most of us are not taught money management skills at school. However, each of us is responsible for our own financial freedom. As Ken Keyes Jr. puts it, "We are not responsible for the programming we picked up as children but as adults we are 100% responsible for fixing them". Building your asset requires correcting the wrong things you learned about money while growing up.
Steps to Building Your Asset Card
Delay your enjoyment.
Many of us are familiar with the sales’ clichés: “buy now, pay later” or “Don’t Pay for 36 months” etc. The unspoken truth is sooner or later you will pay what you owe. It’s either you pay now and play later or you play now and pay later. Paying now to play later is better. Delaying enjoyment is a key to getting out of debt.
If you continue to purchase everything you ‘feel like having’ you will eventually find yourself at odd hours doing odd jobs that you don’t feel like doing. I like Stephen Wright's quote “you can't have everything where would you put it?” To want to own everything one sees and likes is to write one’s own debt warrant and live in a junk yard. Just because you like it and can afford it does not mean you should have it.
There are probably more wastes in the average home today than there are essential goods. Any household good that is not essential for existence is a luxury and many luxury goods fall into the class of wastes no matter how fanciful they may look. One of the most important things you as a purchaser will ever know about things on sale is that no business is established to make its customers rich unless of course the business its non-profit oriented. Just because something is on sale does not mean you need it. Refuse to buy anything on sale especially if you don't need it and you can't afford it.
2. Decrease your outgo.Many people in debt think they need more income to be debt-free. Well, the first step toward financial freedom is not necessarily increasing your income but decreasing your outgo. When your income is less than your outgo you amass debt. When income is equal to your outgo you maintain status quo and live from pay cheque to pay cheque but when your income is greater than your outgo or your outgo is less than your income, you amass more wealth no matter how much you earn.
Did you know that you would be richer in six months than you are today even if you don’t earn a dime more than you currently earn just by consistently spending a dime less than you currently spend?
You can start spending a dime less today by paying a dime less on credit card loan interests. Interest on borrowed money is one of the major outgo outlets for most people in debt. If you ever wondered why the rich get richer and the poor get poorer, this is it. While the rich continue to earn interests on their invested money, the poor continue to pay interest on their borrowed money. Refuse to buy on impulse, refuse to get more credit cards and start decreasing your outgo. If you take these steps, you would soon get out of debt and start building wealth for yourself, your family and your world. You will succeed!
You can reach me at everydaylifeblogging[at]gmail[dot]com
