A barrel of oil is trying to make a century, stock market is shaky, housing market is in the trenches and still “U.S. consumers spent $10.3 billion on holiday purchases on Friday after Thanksgiving, an 8.3 percent increase from last year” according to bloomberg.com
I too contributed my share to $10.3 billion over “Black Friday“. My wife and I spent over two grand, guilt free. Statically, an average American spends about $800 on “Black Friday” weekend. And we spent about three times that. “How did you manage to pull that off and that too with out any guilt?” you may ask. Well, the simple answer is – planning and delayed gratification. In this post and next few posts, I will share some of the basics that I have learned about personal finance and its management. These ideas are so simple that I am gonna call ‘em “Duh Rules“. ["Duh" is an exclamation that is used to express disdain for someone missing the obviousness of something]
But first the meat behind my Thanksgiving weekend shopping spree:
The average family carries credit card balance of $8,000.00 month to month. And I have been carrying more than double the amount, i.e. $20000 as credit card debt. But all that credit card debt is in fact making money for me instead of taking money from me and helped me in my Black Friday shopping spree. How? Again, its all about planning. Its pretty simple if you know what you are doing.
2) I believe in “giving” & so I take out some money for charity/donation every year and this year was no exception.
3) I almost maxed out my 401K for this year. My wife is at 75%.
4) I started saving at least a decided-minimum amount of money each month to build up my “rainy day saving”.
5) Then, when I got a credit card offer that would give me 0%APR for 12 months and 7.9% after that, I accepted it. At first my credit limit was $20,000. I took half (50%) of that money and deposited in my high interest savings account (5.05% APY). Reason for not transferring 100% (i.e. $20,000) of amount in savings account was not to affect my credit score drastically. I didn’t want to be perceived as high-risk consumer, totally dependent on the credit card. After couple of months, I called the credit card company to double my limit to $40,000 and again transferred $10,000 into my savings account. At end of this promotional period, I would have paid off the debt and still left with about $800 from interest and a credit cart with relatively lower APR (7.9%) and $40,000 of available credit.
I took care of the DOs first, i.e. paying off my debt and build some savings. Prioritization helped me to utilize the money to take care of important needs and then with the left over money I took care of my wants. Other part of this whole process was delayed gratification – I waited for over year and a half to get what I wanted even though I could have gotten it earlier. While I was getting rid of all the debt, I kept accumulating all the gift cards and money (given as gift on various occasions) over the past year and a half. And on this “Black Friday”, I bought a 50″ Plasma TV and a nice Home Theater System for our home besides Christmas gifts for relatives and friends. All in all, my out of pocket expenditure was $1000 but then that $800 that I earned as interest would offset most of it and at the end of it I would have shelled out only $200 of my own money.
Securing your financial future and living a satisfied, non-penny-pinching life can go hand in hand, if planned well. But first step to planning is education. I’ll talk more about it in my next post.