'Cost Cutting Your Way to Wealth' ...

joyfulguyMarch 8, 2006

... is the title of an article in my favourite personal money management magazine, that arrived today.

Haven't read it yet.

It causes me to remember a book written by a local financial advisor, several years ago, titled, "Financial Freedom without Sacrifice"

One of his topics was, "How to make nearly 40% on your money - guaranteed".

Thesis was - most of the stuff that most of us buy using so-called "credit" (really "debt") cards isn't tax deductible.

If you carry a balance on a store-issued card, usually the cost is about 25 - 28% annual rate of interest, fee, or whatever you want to call it.

Whatever - it's still money flying out of your pocket - into theirs.

And, since most of the stuff bought isn't deductible, you must pay that interest/fee/admin. cost, or whatever - with after-tax money.

So, if you're in 30% tax bracket, of each $10.00 that you earned, only $7.00 is left, after tax.

So - $40.00 earned leaves $28.00 after-tax money to pay the interest on that $100. carried on your store-issued "credit" card.

This only works in terms of reducing the balance owing on one's credit cards - sorry.

That writer also said that they should teach more about managing money effectively in our schools, which they don't.

Have a great tax-reducing week, everyone.

ole joyful

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It really takes a change of thought for a lot of people. To quit looking at it as "only $10 a month" for that credit card balance when that $10 sometimes doesn't even cover the interest you're paying, or going to the fancy SUV instead of a more practical vehicle for them is "only $30 a month more" and forgetting how many more years you're paying, but the best one is "it's tax deductible".... when whoopee, you get essentially a few dollar rebate but you'd have all of it if you didn't buy it from the start. This, all instead of looking at what it actually costs and base the decision on the cost. Never base a decision on $___/month. Save up and pay cash whenever possible and you'll save money. And often feel much better about the purchase.

Throw in that all of the unnecessary purchases totalled up and put in an interest-bearing account keeps costing you more. Was that left-nostril inhaler really that much better to justify the costs not just paid, but what it costs to have it? Or is it taking up space in a drawer somewhere?

That's where it comes down to if you really need it or really want it, go get it. But it's the impulse and the questionable purchases that add up so quickly.

    Bookmark   March 8, 2006 at 3:34PM
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Some of us really do behave ourselves with credit cards. We use them for everything and the price of membership is worth what we get.

Our cards get us airline miles and living in Alaska, airline miles are valuable. We haven't had to purchase a ticket in years, so we consider the fees a good investment.

We even put the last car we bought on a card. And of course, it's a given that we pay them off in full every month.

The best money managment it to know if you can't afford it, you aren't entitled to have it. Cash or card, if you don't have the money for the item, you shouldn't be buying it. Except, dog gone it, I can't quite pay cash for a house. But we're getting there.


    Bookmark   March 10, 2006 at 2:53AM
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There's a lot of negative views on credit cards, and honestly a lot of people use them badly and waste money with them. However, used right they have a number of very good uses.

First of all, at least here in Europe, credit cards have much better fraud insurance and protection than debit cards. I know if my card is stolen and someone goes on a crazy shopping spree with it I won't be liable to pay for it.

They also come with offers. As someone else mentioned, air miles can be handy. Some of them are linked to specific stores/brands and can earn you money off shopping there. Also, perhaps most useful to me are the cashback cards that gives you back around 1-2% off everything you spend with them - which can save you a lot of money over the year. All of these extras are a ploy to make you take out cards which generally have higher interest rates, certainly high enough to wipe out the cost of the extras and cashback, but if you pay off the bill in full every month as I do then you can keep the cash back and save real money with it.

It's all about using them the right way, which in all honesty probably isn't the way the banks intend them to be used. Ironically, I never use mine for credit.

    Bookmark   March 10, 2006 at 9:28AM
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Bad news, folks - the reference wasn't to an article, but is the subject of a series of presentations that the editor of the magazine is to carry on through Western Caanda, at Costco stores in major cities, soon. Which he gave to many of us in Eastern Canada last fall, at no fee. A number of excellent ideas presented. A reduction in cost of Costco membership was included.

At that time, one could examine the overhead transparencies that he used in the presentation by going to www.canadianmoneysaver.ca then going to "Tips and Tools". I don't know whether they're still there.

If you're a Canadian resident in the West and might be interested, check the listing of locations and dates by going to a local library and checking "Canadian MoneySaver" magazine, current issue. Or go online to the address above to ask them to send you a free sample copy.

Good wishes for the weekend. Just imagine - were you retired currently ... every day would be weekend.

When's the best time to start thinking of and planning for your retirement?

At about age 15 (actually, at about age 2, when you become aware, would be better). Every day that you delay makes it that much harder to work out, and longer to achieve.

Had you invested $1.00 at age 15 and achieve 5% return throughout, what would be the value at age 65? $11.00 and change.

Suppose you could achieve 10% rate of return? Value $22.00 and change, maybe? Not at all - you neglected to consider the value of comounding at a higher rate. How about $117.00 and change?

ole joyful

    Bookmark   March 10, 2006 at 4:23PM
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Does $1.00 increase in employment income equal a dollar saved in buying something?

Usually not, unless the thing that you bought was tax-deductible due to you operating a business, etc.

The stuff that most of us buy is using after-tax money.

The $1.00 increase in employment income is before-tax money.

So, if you're in 25% marginal tax bracket, it takes $1.333 extra income to equal $1.00 saved when you buy (non-deductible) stuff.

Learning how money works - an interesting hobby THAT PAYS WELL!

Have a happy week, everyone.

ole joyful

    Bookmark   March 20, 2006 at 7:57PM
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There was a time-in the 1970's or 80's when on your federal tax return you could deduct ALL interest payments,not just home mortgage interest. Although it would cause more paperwork, I wish Congress would return that deduction. I know Americans are drowning in debt,but it would bring about a little "tax relief" the middle class can use!

    Bookmark   March 21, 2006 at 11:07AM
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The middle class is where the money is - and there's a lot of them.

So - they get taxed.

There aren't a lot of rich folks.

And they contribute to political campaigns, more than do the middle class guys.

Rich guys only get one vote, though.

So there has to be some flim-flamming going on to convince the mass of voters that they should go on voting for the good guys.

By the way - we in Canada can't deduct mortgage interest.

Some who operate home-based businesses try deducting part of it, as they do part of cost of phone, computer, light, etc. But some financial advisors recommend against it, as, when one sells their home, it may jeopardize the tax-free status.

When Canadians sell their owner-occupied home, capital gain is tax-free.

Have a great introduction to spring.

ole joyful

    Bookmark   March 21, 2006 at 4:35PM
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Some of you who may not have seen this on the first time around may find it interesting.

ole joyful

    Bookmark   May 21, 2006 at 4:31PM
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