First read in the Mathews-Gloucester (Virginia) weekly Thursday newspaper:
credit card debt average in 2012 $9.283 which I would not know about.
Unless we intend to pay in full, we do not put anything on credit card.
AFCPE | Blog » 2013 » April
BoBraxton, thank you for creating a new discussion thread! We appreciate and enjoy your participation in the MyRetirement online community and look forward to your future contributions.
Different strokes for different folks. Either you trust yourself to manage debt wisely or you don't. A good many people sadly fall into the latter, because of a lack of financial education - something I've come to believe should be part of a basic education curriculum these days. We do our young people a disservice by not teaching them to be financially savvy. I participate in other forums and the basic questions posed by some of the young Millennials and college students shows a woeful ignorance.
It took my spouse and I a long time to handle debt wisely, but we finally got a handle on it. We live in an urban area and have a lot of discretionary income. To carry cash would be far more dangerous than any charge card could be. What we charge, we pay off the next month. We use a card that gives us generous bonus points for books, because we're rabid readers. Over the last four years we've gotten back $3,000 in free books. No interest paid, no fees, and freebie books - using credit works fine for us.
What is happening to the WWII age group is that they are outliving their assets. After 30 yrs of retirement their fixed incomes are so hammered by rising costs of food and services, plus an increasing burden of healthcare costs. Most people don't realize that on average, looking at LIFETIME costs, Medicare covers only about 51% of your healthcare costs. These elderly are woefully unprepared for a lifestyle where even those who can afford a $6K/mo senior living apartment are on waiting lists in NYC, as detailed by this week's NYTimes, because of a lack of senior housing starts over the last twenty years. The seniors who can't afford current housing costs are renting tiny sublets or even living in their vehicles.
My MIL is frugal to the bone - I've had to take clothes away from her that are literally taped together, to throw them out - but had I not convinced her to sell her home, she would have quickly run out of savings. She and her DH never did any professional financial plnng; it was only by the grace of God they avoided being an elderly example of What Not To Do.
One of the best credit card "debt management" techniques I know of is just paying off the credit card bill every month. The interest rates are too high to let that kind of debt accumulate.
Also, can't think of many Deprecation-era folks that were affected by it (poor, not rich) did much financial planning. Mom's financial planning was a set of different envelopes for the various bills coming up. That along with Sears layaway at Christmas was just about it.
My grandmother was born 1901 (married grand daddy born 1902). She graduated in Florida (high school, eleven? grades) and then worked (manufacturing). By the 1930's she had saved $600 - which her parents-in-law insisted she not put "under the mattress" because that much (a lot in those times) money needed to be deposited in a bank. You can figure out the rest of the story. They had nine children (my mother the first) and could have used that money - might have been enough to build some kind of a house way back then. I felt very sad when first I heard this story. My mother (born 1923) is still living although the next three (brothers all) have died by now.
We pay for almost everything with a Platinum credit card and it is always paid off before the due date. It's like getting an interest free 30 day loan. Other advantages are that we can easily review our monthly spendings, get bonus points that we transfer into money and deposit directly back into that same account, and have some guarantee if purchases are not acceptable or, in some cases, even damaged within 30 days of purchase. It's a no-lose situation as long as we aren't late on our payment.
It is more than intentions and willpower. The insidious nature of credit card charging is the time delay (the reverse of what works so well for compounding in investing).
1) charge is made
2) list of charges is accumulated
3) invoice arrives but is not due for about three more weeks
4) delay to pay - in the meantime, 1 and 2 continue, 3 will soon happen again
The first thing you know, you have about four months (at least three) of charges.
The first time that happened for us, we basically put a halt of credit card use for about six months - lessons learned.
There are two important factors to consider when using credit cards:
(1) Paying your card off monthly is not so much a matter of financial savvy, it is a cultural thing, like my parents hated debt, and both my brother and I hate it too. Because my brother's wife is a spendthrift, his credit card debt got out of control. The result was he could not sleep at night, until he finally paid it off.
(2) I had the same problem with my spouse, but the way I dealt with it was: Look, I am only going to make so much money in my lifetime, we can spend it all on things we want or we can spend 90% of it, the rest will cover our credit card interest. Her answer was I want it now, because I may not be around tomorrow. I stood firm and it cost me a divorce. I guess this is the American Way.
It is difficult (my perspective) to understand how someone with a firm grasp of mathematics who knows how to use a spreadsheet (program) could ever "choose" to pay credit card interest rates and fees. Myself, I am strongly influenced by the Great Depression. My mother graduated from high school in 1938; my father, much older, was born 1916 and served in World War II. We did NOT pay cash for our house, but only once (1976) did we take out a car loan and that was deliberate, to "establish a credit record." We paid it off after no more than six months. It was then that I learned of the "Rule of 78" which I thought was quite unfair.
We use a Credit Union for our banking. They traditionally have a lot less fees for everything.
Re credit cards for people over 62 = easiest solution is to pay in full every month. Use two credit cards whose
billing dates are about two weeks apart. Learn the billing dates and you can get 45 days of their money usage
for that time. Please also remember, even if folks tell you that the cost of living is very low, it isn't. When you
consider food, fuel, meds, taxes etc the average COL is about 4% per year. With using that percentage, if
you need $25000 per year to live modestly, you will need double that amount $50000 in 18 years to live the
exact same lifestyle.
I started to learn about investing in my early twenties. I contributed about 23% annually to TIAA-CREF for
the last 10 years of my employment. By splitting my retirement with a larger amount with TIAA (graded option which
has a built in COL) and a smaller amount in CREF, I have lived modestly comfortable for the last 9 years.
I only buy if I need (not want) something and I have the money put aside. Always had 3 years living expenses
put aside once I turned 40. Still carry my cash folded with a paperclip to remind me of the time many years ago
when all that I had was $5 and four days to go to payday with two children to feed. Good reminder.
Thanks for sharing your thoughts PaulMac. Your 4% COL makes a lot of sense, medicine can go up by 10% or more annually, rent, taxes, insurance all go up by more than the published COLAs. Just wanted to add, I have been retired for 24 years now, my retirement has been virtually 100% stock from day one, and I am still 100% invested in equities. I feel this is the only type of investment that will protect your purchasing power, regardless if the official COL is 2% or 12%.
As for credit cards, I like them because I don't have to worry about getting the right change or even carry change. Credit cards also allow me to quickly visualize my spending, since my other expenses are pretty well fixed. My credit card balance varies from month to month, suffice it for me that my running average stays under a specific limit. If I overcharge one month, I try to cut down a bit the next and so on. Plus it is a lot easier to get a refund, if you are not satisfied with your purchase.
Just wanted to share that with you!
Thank you for your support. If the market were to tank 20% some people with no additional rainy day fund or investments would not survive. The numbers that TIAA gives you looks on paper but one is responsible for oneself and I have always invested like you but only after the basics are well provided.
Hi PaulMac, when I started investing for my retirement, I always think back to something I read in college: It was written on the blotter the school left on my desk in my dorm. It was a bunch of adages, and one of them said "If everyone in the world wanted to own shares of stock, there just would not be enough shares to go around".
Later as I began investing for my retirement (1970), a colleague of mine said, "If you worry about Cref tanking, then the world will be economically bankrupt and your Tiaa will be worthless too. Following this advice was a no-brainer. I quickly figured that only 50% of my investment was at risk, because no taxes had been paid on it, and because I could not collect my employer's contribution as additional income. So half my money was play money, if you will.
That said, I am with you, I draw enough on a Tiaa annuity, when combined with my social security benefit, to be able to survive without working, a spartan lifestyle, but adequate so that I do not have to ask for help. The Cref part is significant and allows me to lead a very comfortable lifestyle, e.g., lease a luxury car and take European vacations.
I too have some cash for emergencies, so that when the Market tanks, I withdraw nothing more than necessary, in my case I am on mandatory distributions from Cref.
Mostly I think, saving for a rainy day has been my mantra from day one, it prevented me from spoiling my kids like the other kids in the neighborhood they grew in, and my three kids turned out better in life than their counterpart friends and relatives who had been spoiled rotten.
It is a good idea to have a 3-6 month rainy day fund which is easily accessible (not tied up in a CD); if this sounds unreasonable due to a lack of funds, start with $1000 emergency fund.
Emergencies are going to happen and rather than pretend they won't and find myself in credit card debt, having cash I can use to deal with the problem gives me peace of mind.
Paying with cash, versus credit does give me pause because I am acutely aware of the cash on hand: a credit card is like a blank check and I do not seem to be as frugal when laying out a credit card as opposed to my last $20.
Remembering many years ago - my two parents - their eight children. I left after college graduation, before my 22nd birthday.
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