Do you have a credit card? I do. I got one in the mail and activated it because I needed a laptop. And, because of a series of silly mistakes on my part, I ended up paying for the laptop in cash, which spared me from living with the knowledge that my first credit card bill amounted to almost 20k pesos. (To set the record straight, my first credit card bill amounted to a big bold zero because I was too shy to swipe. Mabait pa ako nyan. hehe!)
I got lucky last Friday when I stayed on to hear Sha Nacino's two cents on credit cards (in particular) and financial freedom (in general). Sha is a yuppie like me, but she knows more about these things, not only because she works in a bank and finished BS Business Economics in UP, but also (and more so) because, in her own words, she has "made a lot of mistakes." In the talk she gave her insights on assets, wealth, and of course, saving.
Here, some points that I found very helpful (which I hope you'll find very helpful too!):
- Live within your means. Ok, ok, this may seem a bit obvious, but let me explain. If you have a credit card, technically you aren't living within your means. A credit card is meant to bridge that gap between expenses and income, especially when the former exceeds the latter. This is not to say that credit cards are bad... it's how you use them that makes them either bad or good. Remember that the percent interest the bank collects from your unpaid balance is much more than it gives your savings account. Zero out the balance in your credit bill as often as possible.
- Wants and needs? Know which ones are good purchases. I'm not gonna say don't buy the wants, because I can't do that either. But here's something to help you decide whether it's a good buy or not: According to Robert Kiyosaki's Rich Dad, Poor Dad, an asset is anything that puts money in your pocket, while a liability is anything that takes money out of your pocket. Before you make a lifestyle-changing purchase (a car? a huge LCD TV? enrolling in a class? the newest gadget in the market?), think about how it will help you grow as a person (grow in skill/knowledge, hone a talent, instill virtues, bring you a step closer to your dreams) and how much you will spend on it (in terms of time, too, not just money)--and ask yourself: is it worth it?
- Develop a habit of saving. Sha points out that as your income grows, so do your expenses. Hence, it's not how much you earn, but how much you keep. This is why saving is so important. If you have a hard time saving, maybe you're using the wrong formula: Income - Expenses = Savings. Use this instead: Income - SAVINGS = Expenses. Set aside a certain amount every month that you absolutely will not touch on pain of [horrible punishment here]. Put it in a savings account so it's not handy when you want something. If you have enough money to set aside that you won't miss in a while, how about considering a time deposit? The interest is larger, and you really won't be able to touch that monies! (There's also the option of the stocks and mutual funds, but those are for people who understand the risks and know how to "play the game." If you're a beginner, take small steps first.)
Did you see that movie Confessions of a Shopaholic? While I wouldn't call my appreciation for shopping an addiction like Becky Bloomwood's, I learned something from the Girl in the Green Scarf: while making the credit card hard to reach (literally freezing it in a block of ice, for instance) will stop you from buying things on impulse, it is not the same as self-mastery.
Because it's sale season I am tempted to buy something for myself every time I wait around in the mall. I know I'm on my "lean months," so I really should think twice before I buy anything impulsively, whether it's on sale or not. Remember that scene in Confessions where Becky enters a sample sale even when she knew very well she didn't have the money to pay off her debts? She tells herself: "These cashmere gloves I need as it is winter and I have... hands." Don't make excuses or superficial reasons for buying something. Excuses only weaken your resolve to do anything, and you lose control again.
I think financial freedom goes hand in hand with self-mastery. That and the virtue of poverty. Now, how on earth did poverty become a virtue? Poverty here means you are not attached to material things, and you are not impressed by the glitter of a name or the cost of a piece of merchandise. You know what you need and want (and have placed these in a proper priority list), and you see how you can make the best use of the things you can afford. Only in living the virtue of poverty can a person see the real worth of things.
Photos are stills from the movie Confessions of a Shopaholic, starring Isla Fisher.