If your household’s lifestyle pushes you to keep spending income several months into the future, to live beyond your means and to rely heavily on credit cards, you probably have a credit score below 600. This puts the interest on your credit cards higher than 18% or at least an addtional annual expense of more than $2000 for every thousand dollars of credit card balance. This does not include penalties for late payments which you probably incur for almost every bill. This adds another $1440 to your annual expense for every thousand dollars of late payment.

So, set up a household budget that is within your monthly income and affords you to save at least 5%. Stick to it and keep your spending to necessities. In this drive to live within your means, you need the commitment of all members of your household –including the children.

Educate everybody in the household about the household budget. Commitments from everybody are more easily obtained if everybody is involved in the making of the budget.

image from Microsoft Clipart

If your household’s lifestyle pushes you to keep spending income several months into the future (i.e., live beyond your means and rely heavily on credit cards) and are unable to save at least 5% of your monthly income, you are in DANGER.

You are living on the edge of a financial disaster. If any kind of emergency hits, you will need cash in a hurry; i.e., sudden sickness in the household (not covered by insurance or company benefit), a disaster such as a fire (even a small one which will need some repairs), a fire at your neighbor’s house which affects your own house, an accident involving your family or properties, etc . . .

You have to keep reminding yourself that savings are not only for the future and rainy days, but also for emergencies.

image from Microsoft Clipart

Credit cards enable you to spend future cashflow, income that you haven’t earned yet but expect to earn with some certainty (e.g., regular paying job, income from own business, etc).

Credit cards are temptations to live beyond your means. You are living within your means if you are able to pay off the entire balance in your monthly bill. This is the best position for you. You are, in effect, getting a 30-day loan from the credit card company interest-free.

If you are not able to pay off your entire balance and this balance grows from month to month, from bill to bill, you are clearly living beyond your means and should re-think your spending habits.

image from Microsoft Clipart, reconstructed by Ren Garcia

Your credit card is a source of interest-free loan. But, this will work, if and only if you think of your credit card as a tool for personal cash flow management –rather than additional cash in your wallet.

It often happens that a purchase has to be made before your expected cash has become available. If you know that your cash will come in before the bill from the credit card falls due, make the purchase with your credit card –but pay off the whole purchase when your cash comes in and save yourself the interest cost. In this way, you will in effect have availed of an interest-free loan.

In today’s credit crunch and rising prices for oil & almost all commodities, you do not want to add interest & penalties to your expenses. Moneypenny offers some survival strategies in Digital Money World.

images from Microsoft Clipart, reconstructed by Ren Garcia

Credit Cards, so that they do not become a heavy burden (you can end up paying as much as 30% on interest & penalties), have to be managed just like any regular bank loan.

It is important to keep a proper mindset. Do not think of your credit cards as additional cash in your wallet. Thinking of your credit cards as available cash, you tend to purchase items that you want –rather than those which you really need. Or, if the purchases were for items you really needed, if you didn’t have the available cash in your wallet, you would postpone the purchase until you could afford it or had the available cash.

The proper mindset is to think of your credit cards as tools for cash flow management. You know more or less when cash will be available. If you are employed, you expect cash to come in at the middle and / or at the end of the month. If you are in business, you know when collections are expected.

It often happens that a purchase has to be made before your expected cash has become available. If you know that your cash will come in before the bill from the credit card falls due, make the purchase with your credit card –but pay off the whole purchase when your cash comes in and save yourself the interest cost. In this way, you will in effect have availed of an interest-free loan.

In today’s credit crunch and rising prices for oil & almost all commodities, you do not want to add interest & penalties to your expenses. Moneypenny offers some survival strategies in Digital Money World.

images from Microsoft Clipart, reconstructed by Ren Garcia