Mastering Your Credit Card

Credit cards can be a force for evil or a force for good.

One path leads you down the road of mindless overspending and monthly interest charges. The other path leads to points, freebies, reduced fees and increased happiness.

So for years I used my credit cards wrong. Completely wrong. As soon as my paycheck ran out I would put any purchases on the credit card. Leading to a bill at the end of the month. Then I would have to spend most of my next paycheck trying to pay it off, which lead to me being broke and ….you guessed it, putting more purchases on the credit card. Eventually I was thousands of dollars in debt. (That’s a whole other blog post.)

I think credit cards are difficult for a lot of people to manage, the temptation to spend that available credit is high.

So whats the answer? Well as my rich co-worker says “Credit cards are easy, you just pay them every month when the bill comes”

Well DUH.

Is that like the weight loss advice “just eat less….duh”. Uh thanks, I never though of that *eyeroll

For both these problems the answer is simple but in practice not at all easy.

In reality we have to apply some strategies and new ways of thinking to really master the situation

In order to get the most out of your credit card you do actually need to pay it off each month. I suggest that you pay as you go rather than waiting for the surprise bill 30 days later. Every time you make a purchase transfer the amount from your checking account over to your credit card. No money in checking? Then NO PURCHASE FOR YOU. This is a way to start building discipline with credit card spending and never letting yourself get into credit card debt.

These days there are a variety of cards available including no fees, low interest or platinum cards with built in travel insurance (a nice saving if you plan to travel overseas soon). I like platinum cards as I’m a bit of a reward chaser.

Platinum Airpoints Credit Card

However most great points/air miles earning cards have big fat fees. You’ve got to wonder if the fees are going to cancel out any points you might earn. So you do have to do a little math. How much money are you going to funnel through the card and are the rewards worth more than the fee. Credit cards compare NZ does a good job of rounding up all the different types credit cards available in New Zealand and is a good place to start if you are looking for a card.

Haggle those fees, call them up, tell them you are looking at a variety of new credit card options and are their fees negotiable? You don’t know if you don’t ask. If you have other business with the bank like a mortgage or term deposits they may be even more willing to negotiate fees with you. Every fee eats in to the value of the rewards so its important to try and get these as low as possible.

A lot of credit card companies are going to try sign you up for repayment insurance if you’re paying it off as you go then you don’t need this.

Once you feel like you’ve mastered credit card discipline you can start maximizing rewards. Put all your purchases through the credit card (excluding those that charge extra for credit card transactions), groceries, petrol, bills (energy online lets you pay your power bill with a credit card through an app with no extra charges), work expenses that you can claim back, all household spending should go through the card. You’ll be surprised how quickly it all adds up. Keep an eye out for bonus days where purchases can earn you double or triple airpoints. We’ve enjoyed thousands of airpoints over the years just by mindfully spending with the credit card.

Even though we are dedicated to paying our mortgage down early and building our savings we have also enjoyed small holidays around New Zealand thanks to rewards earned on the credit cards. We’ve even used points to purchase a Air New Zealand Koru membership (lounge access, extra baggage allowance) for that extra feeling of luxury while traveling. My feeling is that it’s certainly been worth our while.

 

Income Streams for Last Year (2016)

I’ve ranted about this before. You are not wealthy, you are not rich, you haven’t made it if you are living pay cheque to pay cheque with no savings or investments. MONEY IN THE BANK is what makes you wealthy and only money invested can make you that sweet sweet passive income.

Passive income is what you need to have money independent of a job (so you can stick it to the “man”) and there are lots of ways to generate it. Here’s what I got up to over 2016

Stones of Weath in the flow of a  money stream

Last years (2016) income streams

Peer to Peer Lending $159 (Squirrel) +$75 (Harmoney)
Renting out a room $6500
Dividends $1760
Rental Properties tax refund $5200
Casual work/side hustle income $1067

So the part time work wasn’t passive, obviously I had to trade some of my life force (time and energy) for money. However I only side hustle things I enjoy and things I can learn from so its a win for me. This is work I would quite happily continue if I was retired from my main job. If you can find something you love, that adds value to your life and pays a bit of cash then this is the low barrier way to earn extra income. Other methods like investing require cash up front, side hustles just demand your time. The strain from working so much can take it’s toll so I recommend investing that extra money in income producing assets or paying down debt.

Annnnnnd on to the tax refund, technically that means we made a loss on the rental properties. Ouch. Some of it is a loss on paper only as we had a bit of depreciation this year. Some of it is real loss as the rent doesn’t quite cover the costs of holding (mortgage, repairs and maintenance). I’m still happy with the investments as the properties have increased substantially in value and we should be able to sell one this year and pay down the mortgages on the other properties to the point where we are able to generate actual income.

The renting out a room income comes from a friend of the family staying with us. A youth of 19 years trying to make their way in the big city (well the biggest in NZ anyway). So we have offered a low cost place to stay, all expenses (full board) for only $125 a week. I’m thinking over time we may have to increase that amount so its inline with what they would pay out in the “real” market so that we can encourage them to become self sufficient and manage a budget that reflects the real cost of living in Auckland. We’re just waiting for a little more success on their part with employment. It’s very tough out there for young people just starting out.

Alternative income for 2016 was way higher than 2015 thanks to having a full time boarder. I’m doing my best to invest all that extra income because they will definitely move out at some stage. I’m hoping to add more funds to the P2P lending this year as Squirrel is working out very well with no defaults and an excellent caliber of borrowers. So hopefully 2017 will see another increase in passive income, stay tuned!