It’s the most wonderful time of the year…for worrying about cash. In the next few weeks I will be addressing healthy cash flow going into the New Year. Credit management,budgeting, and taxation are the focus of this series to help achieve a robust financial picture so that this time next year you will be on better footing.
Few people appreciate the impact of cash flow management on their financial health. Good management reduces the need to borrow, which in return keeps unnecessary interest payments at bay. By having a budget, knowing what you are actually spending money on, allows you to better manage your cash flow. There are products available for your computer, some on-line banking features and even apps that can simplify the process.
Going into December the strain of the season manifests itself in an artificial need to spend money. A budget of the previous eleven months can be negated by one month of uncontrolled spending. We have a tendency to rely heavily on credit, especially store cards. The more cards used the more minimums there need to be hit to get those discounts or points. Actually, it is all well and good to do this if you have set aside cash to pay them off in January, if not you are incurring major high percentage rate payments.
Credit cards can be tricky. The fantastic zero percent offer quickly morphs into a huge rate after the fixed period of time elapses. Keeping an eye on the clock or in this case calendar is beneficial if you are prudently paying off the card before the rate jump. Stores, for example, often offer a discount if purchases are made on their cards, but it isn’t a true savings unless they are kept paid off interest free. Cash back options are frequently a moving target offering differing amounts on different types of purchases. Let’s say you are getting one rate on fuel and another for grocery purchases make sure that t you are aware of this and use the card to your advantage. Don’t rack up invisible savings that you aren’t actually taking advantage of.
These cards may also come with a bonus that has an expiration date. If you are counting on this bonus as a reduction in the cost of future purchases, you have to make a point of using the bonus before it is no longer valid. If you don’t it isn’t a bonus at all.
The discounts are attractive on the surface. Retailers are not naive, they encourage you to use those cards to get the discounts, but a 10 - 20 % discount is recouped by the 21-27% you will pay if it not paid off in the January. Not only have you purchased extra goods, but you are paying more for them than you think. Do the math...if you had a 10% discount, but are paying it off at a 27% interest rate you would have saved by paying full retail.
Concentrate your purchases on your lowest interest rate card. Buy only what you can pay off, use cash when possible, and as you pay them off, pay the highest rated card first. Prudence isn’t Scrooge’s first cousin; you can still be thought in giving, while at the same time making wise decisions about spending.
The series will continue with a look at ways to budget going forward to ensure a prosperous New Year.
From the Prospero Financial Planning Family to your family, Happy Holidays.