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
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 credit.financial advice
The Trusted Adviser.
Image: digitalart / FreeDigitalPhotos.net
The Trusted Adviser.
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