Build a Cash Reserve and Kiss Those Credit Cards Good-Bye
September 12th, 2007 by Ana
Yesterday, I blogged about the college kid wearing a T-shirt that said, “I know the credit card is for emergencies, but she was HOT!” and mused about how college and military guys are impulsive when it comes to dating and really shouldn’t have credit cards. It didn’t take Patrick from Cash Money Life to disagree with my statement that I don’t think ANYONE should have credit cards, to which he commented:
I would be careful here. Credit cards can be a good way to establish credit history and not everyone has an extra $1000 to buy an emergency airplane ticket or some other high dollar expense. I think *cautious* use of credit cards is legitimate and almost necessary for people who don’t have cash saved.
OK, Patrick, I said I’d write a whole post on this LOL and here we go! You say not everyone has an “extra” $1000 for emergencies, and that is most likely true. However I will counter that anyone and everyone COULD have $1000 in the bank as an emergency cash reserve and all they have to do is … well, just save it!
Like the old Nike ad, “Just do it.” I did it, so I firmly believe anyone is capable of accomplishing it. All it takes is wanting to do it, and learning how to budget. Seriously … *I* did it! Hubby is only an E-4 in the Army and I deliver pizzas, and we still found the extra money every month. Thousands of Dave Ramsey fans have done it, since Dave made that “baby step one.” Folks, it CAN be done, even on lower than average incomes! Hubby and I are living proof.
Once you get that “magic” $1000 in an account, then you can kiss those credit cards -and ALL THE FEES!- good-bye, forever and ever, happily ever after. No more worrying about how close you are to the credit limit. No more worrying about when the due date is this month (because they intentionally move the due date around trying to hit you with late fees). No more interest fees, which some now call “finance charge.” Best of all, no more worrying about how you’ll even get together a minimum payment if Murphy decides to move in, take up residence on your couch, and make your life an example of his law: if anything can go wrong it will.
I do like Lynnae’s idea of freezing credit cards in ice if you aren’t quite ready to take the plunge and cut them up. Combining that with No Credit Needed’s challenge last week, I am throwing down the gauntlet (publicly) to you, Patrick: Go three months without using your credit cards! Put the $1000 emergency fund in place, freeze your credit cards (better yet cut them up LOL), and go the entire first quarter of fiscal year 2008 without the plastic.
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September 12th, 2007 at 11:42 am
In the end, it comes down to spending less than you earn. If you have ever used a credit card, it is likely because you didn’t have the money to buy something and thus had to spend more than you earn. (minus those who use them for rewards and pay off monthly, etc)
Although I remember when my furnace failed, and I didn’t have the $9,000 in short-term savings. I had to use a credit card in the short term, but, because I was used to spending less than I earned, I had it paid off in no time.
September 12th, 2007 at 11:59 am
Oh, the gauntlet had been publicly thrown!
OK, I accept your challenge, Ana. However, I will do this my way, and I will need a day or two to respond.
By writing “I will do this my way,” I actually mean, “I will keep using my credit cards, but I will tell you why I use them and how it benefits me to do so.”
September 12th, 2007 at 12:02 pm
Brian, you figured me out! LOL The main purpose of not using the credit cards and only paying in cash FORCES people to spend less than they earn.
A total furnace failure? OUCH. My furnace broke down on the coldest day in January, and wiped out my nice new nifty cash emergency fund this past winter. I made building it back up my top priority. As soon as we are debt free, I plan to keep enough in savings to replace that ancient CHA unit at all times!
September 12th, 2007 at 12:05 pm
Patrick, ya snuck the comment in while I was typing up a response to Brian LOL
You have more than just a day or two: I issued the challenge for 1Q FY 08, meaning it starts on 1 Oct and continues to 31 Dec. That will give you a little over two weeks to put the budgets in place and figure up where to cut to get the $1000 cash savings.
And if you are going to be intent on using the plastic, be sure to also list where/how it COSTS you.
September 13th, 2007 at 4:09 am
[…] Build a Cash Reserve and Kiss Those Credit Cards Good-bye @ DebtFREE-Revolution: There is nothing more liberating (financially speaking, of course) than having a cash reserve of more than a minimal amount. It’s what distinguishes those who live paycheck-to-paycheck and those who don’t. Check it out! […]
September 15th, 2007 at 6:36 am
[…] DebtFREE-Revolution to read about building up an emergency fund, so you can kiss the credit cards goodbye. I can’t wait for that […]
September 15th, 2007 at 2:40 pm
If credit cards went the way of the dinosaur, few people would be able to save $1,000 because the economy would be so depressed that money would be very hard to come by. The idea that an individual, such as yourself, should not use credit cards is fine (though a depressing way to go through life, in my opinion), but the notion that the world would be better off without credit cards is downright perverse.
On a macro level, what Ana is encouraging people to do is to stop spending — the economic effects of which are pretty obvious. If people stop spending, then businesses stop producing and servicing. Where are people going to get the money to save when there are no jobs? What happens to people’s savings as interest rates approach 0% because the demand of money is so low — why borrow money when there’s nothing to spend it on / who would be doing the borrowing if EVERYONE was a net saver?
The economy requires net borrowers. The key, if you are a net borrower, is to get a good use out of your borrowings. i.e. be responsible. That, not “throw away your credit cards,” should be the advice dispensed.
September 17th, 2007 at 10:49 am
[…] Friday afternoon I received a comment on my post about saving a cash reserve to kiss credit cards good-bye by Jason Dean […]
September 20th, 2007 at 6:59 pm
Jason is obviously in debt (and denial) like most of America. Credit cards have only been around for around 50 years prior to that people had to save before they purchased things. It’s very easy to save $1000 dollars when you are not paying credit card companies hundreds of dollars per year in interest. Ever notice how credit card companies offices are nicer than the average home we live in. Most American don’t pay off their credit cards in full maybe Jason is different. So good luck Jason and I thank you for keeping the economy going! As for me I working to be debt free and keeping my incoming for me and not the credit card companies.
December 28th, 2007 at 11:04 am
[…] chemistry classes. Which might be a few years (or five…). When I stepped down, my credit card debating buddy Patrick from Cash Money Life got the nod to […]
January 4th, 2008 at 8:32 am
[…] at Cash Money Life debated Ana previously. Patrick had some additional points including short term loans and extended warranties. In […]
January 29th, 2008 at 3:42 am
I agreed with you about building a cash reserve. That is what I am doing now. I’ve enough monies in the bank to do without a credit card.
But I still keep my credit card because it gives me the convenience. And I never pay a fee because I always pay on time and in full.
I don’t take debit cards because there are too much fees to pay.
The main point is I guess “Never spent the money you don’t have or you’ll forever in debt”.
It’s a matter of controlling yourself rather than getting a credit card or not.
February 26th, 2008 at 9:25 am
Having a finite amount of cash for ordinary incidental out & about expenses helps prevent overspending (whether you use CCs at all or not). The guy in the T shirt should have taken $40 (or whatever amount he thought reasonable) cash with him, and stuck to it, rather than the CC and having infinite spending possibilities for the evening with the hot chick. (Assuming it was even a date.)
Having night after night, weekend after weekend social emergencies is why young impulsives graduate college with massive student loan and credit card debt. (Don’t assume those student loans are for college, either! They could be spending their refund checks on drugs n hoors. LOL)
March 4th, 2008 at 9:54 am
I really hate that excuse, “But what about the economy?” The economy is growing way faster than is healthy, costing us in terms of quality of life and environmental concerns. Probably 90 percent of the stuff we make and buy and sell is not even needed. The question should not be “What about the economy?” but “Why do we have an economy that requires us to destroy our lives and foul our environmental nest? How can we do better?”
In any case there is no reason to believe that doing away with collateral-free borrowing, or at least severely reducing it, would mean no jobs. People always need goods and services, just not necessarily everything that’s out there now. And for every person who attains financial stability and even financial independence by not borrowing, there’s another one who is just starting out and who needs to buy the things you buy when you are starting out in life: furniture, dishes, clothing, transportation, etc. And of course there are always consumable goods like food.
Personally I think part of the problem is we have valued efficiency too highly; as a result, huge corporations have taken over economic tasks once performed by many smaller businesses. If our interest is in preserving jobs I don’t understand why we allow one huge corporation to do the job of twenty smaller outfits, when a business owner generally makes more money than an entry-level corporate employee. But that’s a whole ‘nother subject that probably doesn’t fit here.