Friday, 8 April 2016

What's in Your Wallet?

Good afternoon, financial independence chasers!

What's in your wallet and how do you make it work for you? Are you solely a debit or credit user? Some people love the old fashioned cash only. It really depends on your personality. I'm going to breakdown these four categories and give you the low down on each type and who they are best for.

- Cash is king! For most of the world, this statement is very true! Most businesses where you can barter would be willing to give you a cash discount. This is great if you have cash in hand and willing to part with it on the spot. It saves the business on merchant fees they have to kick back to say Visa or MasterCard for your convenience of using your card. Hey, it's better for you to get say a 2% discount then for them to pay 2% to the credit care companies. For most of my daily expenses, they aren't very barter-able. I can't go to No Frills and ask for a discount on groceries because I want to pay in cash versus my credit or debit card. Most people also don't feel comfortable walking around with wads of cash in their pocket for safety concerns.
- Cash is best for people you need to see and feel the pain of parting with cold hard cash. If you're on a strict budget and trying to keep yourself honest, cash in hand is the best route to go. You allocate how much you have to spend each week and once it's gone, it's gone. There is no extra leeway to spend more because you physically don't have anymore money to spend. It makes you very accountable for your spending! This is the best when you have very little self control and need to work your way out of debt.

Debit Cards
- There are pretty much like using cash that's in your bank. Funds are immediately taken out when you go shopping. When the funds are drained in the account, then you can no longer use the card. Unless you pay those ghastly over draft fees. The banks like to call it "protection," but really its a smart way to market and cash in on a people's bad habit. If you have overdraft, you will less likely worry about going over what's in the account and it makes it really easy for people to just live in overdraft.
- Those who use debit enjoy the accountability of cash without the worry of carry it around. It's like a safety barrier, where one can access the cash but also keep it safe at the same time. It gets slippery when you opt in for the overdraft protection. It can be useful if you forget about an automatic payment that is debited and you don't want to get dinged for non-sufficient funds and the hassle that comes with. You can easily set up your own free overdraft protection and leave a small amount floating in your account. Say $100 is your float, when you have $100 you count your account balance as having $0. Anything above $100 if what you can use and play with. It's one of the best decisions I've made and done for myself! Sometimes, I forget about an upcoming payment where I need to transfer funds immediately but at the same time I am unable to head to the bank late at night to do a deposit or wait to transfer in money from elsewhere. It just makes a nice buffer between you and a fml situation.

Credit Cards
- Credit is simple to use! It's like out of sight, out of mind. You want something, you grab your card, tap it on the machine and you're on your way. No need to worry if you have the money in the bank or not. And you don't have to worry about it until the next billing cycle which is usually about 21 days away. What you can spend is dependent on your limit granted by a credit card company, but most places will give you more than you really need in hopes of you using up your limit and paying them an abhorrent amount of interest. I find most credit card interest hovering around 20%. TWENTY PER-F-EN-CENT! Using credit without self control can get you into a lot of debt really quickly. If you don't pay on time, that item you just bought cost a fifth more and counting until you pay it all off. It's similar with debit, if you're living in overdraft fees. This is what gets most people in trouble and credit card companies start targeting and marketing towards naive young people still in school. It's like they train you for a life of debt. Most adults get their first card at university and don't really grasp the consequences of debt until they graduate from school and have to make credit card payments on top of OSAP payments (i.e. story of my life)! It also opens you up for possible fraudulent charges or people could take out credit in your name and ruin your credit score. Also, most online shopping requires a credit card. Actually, most of life requires you to have a credit card. You can't even book a hotel without one.
- These cards are terrible for people who lack self control and want instant gratification. I'm super strong willed and quite meticulous with my budget and this still gets me from time to time. Where I'm just like WTF did I spend all this money on and I have to pull from other funds to cover the bill. If you know how to play the game you can make credit cards work for you. If you pay everything on time, you can work with certain cards who give you rewards for things you really want (i.e. free groceries). You're going to spend the money anyways, might as well get something in return for using it, as long as you don't get carried away.

What I use
I use a mix of cash and credit cards, with a huge preference for credit cards. I actually rarely use cash and usually never have any on me, but I can't seem to escape it. Sometimes, I need small change for the parking meter, tipping the delivery guy or a snack like a donut. I don't want to be the weirdo who puts a $1 donut on my credit card. And Dollarama doesn't take credit!

I love my credit cards because I love my points and my cash backs, and I'm very on top of my charges. I check every couple of days to ensure my charges are correct and to pay off my ENTIRE balance. I'm the type of person that if I waited for my credit card statement, that I would freak out at the end of the month and panic on how I will pay it. Even though, I have money in the bank I just flip out over any sort of debt! I swear I hate it with a passion now! I see my credit cards as a source of great convenience and rewards. With one card, I get free credit that goes towards groceries or even gift cards and I usually blow the amount on food for a small Christmas get together. With my other newer card, I get straight cash back into a specific account I'm trying to grow for my future family. It cost me NOTHING in fees and interest to use these cards, in fact they are PAYING me!

Eros and Pookie

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