act2create: Why you should stay away from credit cards. Financial Fitness Part 2

What if I were to tell you to stop using your toothbrush and toothpaste right away. I am sure that the thought of a stinking mouth and germ buildup in your teeth would be the immediate cause of concern. Neither would you take my advice of sacrificing the toothbrush nor the paste.

In the early 3500 BC, chew sticks served the purpose of cleaning the teeth. It could clean your teeth and people lived with the solution for years until the industrial revolution struck and toothbrushes were manufactured which proved to the people that it was the best alternative to your oral problems. Before the modern day toothbrushes, a solution existed to the people’s oral problems. Somebody sold the oral care products citing them as the necessity of the modern day life by showing added advantages of ease and improvement in technology.

The credit card is one such product which has been sold to you like many other products. If I were to ask you for an amount say, 50000 as a loan but I would never disclose the reason for why I was asking it from you then would you lend me the money? In case I gave a reply that I needed the money for fun, costly gadgets, restaurants, shopping and anything luxurious then would you still give the money to me? Not unless you trusted me blindly. Unless you were pretty sure that I would repay you the money with interest then we could possibly reach an agreement.

The cunning institutions who issue them to the people have understood the human psychology. Lets admit, we all look forward to money beyond our necessities to fulfill our desires. For our desires, we are mostly short of money. You browse through that famous online shopping site and see a beautiful binoculars. It is black, shiny and you think its priced fairly. You see that it is being sold exclusively by one seller on the shopping portal and there are only 10 units left. You do not have the money right now but you do not want to miss the deal. You are short of money…grrrr…..Your mind starts to look for ways and then you realize that a solution exists! The “Credit Card“. You already have outstanding amount on your credit card payments but you say to yourself, “I can manage it!” Like earlier, you say to yourself that its the last time and yippeeeee….you purchased those shiny binoculars which are lying in your cupboard within two days of purchase. A month later you don’t remember where you kept it but the credit card bill does not let you to forget what you had purchased 🙂

While you can argue with me that a credit card need not necessarily mean using for luxury and it can be useful for emergency situations as well but there is a better solution. Its called handy CASH.

In the words of the financial planners, this is called as a small emergency fund. If you wish to improve your financial condition then follow with me. I had last used my credit card in 2012 and never needed any since then. I am sure you may still disagree with me on this point but trust me that a better solution does exist.

small emergency fund = a fund small yet powerful enough to fund your critical emergency expenses.

An amount equivalent to $1000 or 50000 INR or even more qualifies to be a small emergency fund. Keep this money in a savings bank account but keep the debit card at home and not in your wallet. You can also keep it  in an envelope at your home which is not easily accessible to you. This is not a savings fund for which you should worry about earning interest. It is a fund created by you to dissolve the tension of an urgent money.

An emergency means a real emergency. A new iPhone, gadget or a google glass does not qualify to be named as an emergency. Before spending this amount, just breathe and stay calm to answer this question “Is it being spent for a valid emergency purpose?”. If the answer is NO then its time to hold yourself back and if YES then you were smart enough to plan for this day.

Anytime this money is spent, you should immediately refill the amount. Instead of a credit card, it can give you the peace of mind and a good sleep which the credit card cannot. I created the small emergency fund in 2012 and in June 2014 I utilized a small portion of it when the real emergency came my way. At that moment in June 2014, I was not thinking about how can I borrow the money as I was well prepared and well educated to solve a situation which can possibly also come your way anytime.

Let me tell you what I did with my credit cards once I created the emergency fund back in 2012. This is the actual photo which I shot back in 2012: