Sunday, November 6, 2011

Word of the year?

If I asked you to name the top word for each of the last five years, what would you say?  I’m guessing that you are thinking along the lines of Global Financial Crisis (GFC), or perhaps the gravity-defying rise and rise of Apple (contrary to Newton's law), or even the Social media phenomenon.  If this is where your mind was taking you, then you would be right – at least according to the American Dialect Society (ADS).

For the record, the ADS chose the following over the last four years:

2007:  Sub-prime
2008:  Bailout
2009:  Tweet
2010:  APP  (and surely an honourable mention must go to “Vuvuzela”)

My guess for a front-runner in 2011:  Austerity

In essence, “austerity” means lower spending and at the moment, its utterance is so closely connected with the word “Greece” that the two could almost be hyphenated.  But the Greeks don’t have this urge to over-spend all to themselves do they.  And I’m not just talking about other governments.  It has become part of the human condition.  And at the very heart of the problem – spending on credit!  Which brings me to my point.

Cash is King and managing your cash-flow is paramount to financial success.

If you want to make smart choices with your money, then you need a cash-flow plan just as all successful businesses do.  You need to know what's coming in, what's going out and have a plan for the surplus. If you don't have a surplus, more work needs to be done on the first step to ensure you don't live beyond your means.

People that need credit cards, do so because of poor money management - they've had something unexpected come up and don't have emergency funds, or they are constantly spending more than they have available and keep thinking they'll clear it next month!

Or the marketing con of frequent flyer points has won them over – paying a surcharge of 1-3% (or even 10% in the case of taxi fares) for the privilege of using credit. There is your free flight each year, if you weren't using credit.  And then there are the higher annual credit card fees if attached to a frequent flyer program.  We know, because we see it all the time.  People managing cash-flow on credit cards spend more than they planned to each month and end up paying more than it would have cost for the trips that they are earning for "free".  It’s a false sense of benefit!

The convenience argument is now gone, as debit cards provide the same convenience and you are spending your own money.

The emotional impact is known – you will always think a little longer if you are paying in cash, versus whacking it on the credit card.

Avoid your own taste of “austerity” by making a smart financial decision – develop a cash-flow plan that works without advice

The Trusted Adviser.

Image: digitalart /

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