Thursday, June 5, 2014


Ok, I started this blog, and then I becam MIA! I apologize. I am studying for my CFA level 2, and life has decided to deal me a bunch of lemons with which I am attempting to make lemonade. I have alot of ideas for posts, and I promise I will return!

Tuesday, October 1, 2013

Credit Cards Are Cool

We've all had it drilled into our heads... Pay off your credit cards. Your parents told you, tv comercials told you, it is one aspect of credit cards that everyone should know, and yet 1 in 20 individuals in Canada don't think they'll ever be able to pay off their credit card balances. We were all told, but not taught why, and that is the point of this post.

I remember the day that I got my first credit card. I was 18, and the bank gave me a card with a limit of $1000.00. 18 years old, a student, with no immediate source of income, and the bank decided I was worthy of a $1000.00 credit limit. The problem with credit cards, though, is that the credit card companies are very smart and they play off the human psychology of instant gratification... buy now pay later. They fit perfectly with our society of consumerism. We're surrounded by advertisements in our every day life and credit cards allow us to satisfy all our wants now, with the hopes of paying it later. But this is what tends to happen:

I'm out shopping (wait, I hate shopping, but for all intents and purposes I guess that doesn't matter). I spend some money on some jeans, a cute top, and a dress, blowing spending $200.00 (can you buy all that for $200? can tell my wardrob is either 10 years old or hand-me-downs from my super stylish mom).

Anyways, back to the story.

So you spend $200.00 today, and guess what, you don't have to pay for it for a least a month! If not longer! (depending on when you purchased the new awesome clothes on your billing cycle). You don't have enough money that day, but you swear to yourself that buy the time the bill is due you'll have scraped together enough money to pay it of in full. You know, like you're supposed to do.

Then 2 weeks later, you're out with your friends. Dinner, drinks, the club, and a cab home. Before you know it you've spend another $200.00, forgetting about the $200 that you spend 2 weeks ago that you haven't paid for yet.

So finally the bill comes, and you're surprised because you forgot about the shopping spree that you went on that you haven't paid for. You've managed to save $200.00 but you spent $400.00 without realizing it. So you pay what you can on the card, leaving a balance, and you promise yourself that you'll pay you card off next month. Then, before you know it, month after month, your credit card balance starts to slowly creep up and you're charged interest.

So how do the billing cylces of credit cards work?
Well the statement is generated on typically the same day every month, then it's mailed to you, and then you don't have to pay the bill for another 20-25 days after the statement is generated. So it could look something like this:

January 12 - statement generated, everything up until this point is on the bill, everything purchased after this date is due on the following bill (February 12).
January 19 - receive the bill
February 2 - the bill is due --- at this point you only have to pay what you bought up until January 12, not the balance that you currently owe, as all your purchases from January 13-Feb 2 will not be due until the next billing cycle.

Interst, so what? I only carry a small balance.
Well here's the thing that most people don't realize. You don't pay interest on just the portion that you do not pay off at the end of the month. You pay interest on your average daily balance from the bill. So for example:

January 13, 2013 - the day after your bill was generated, you pay tuition on your credit card and it cost $10,000.00.
February 12- your statement is generated and you owe $10,000.00
March 2, 2013 - you have *almost* all of the money, but you're just short $100.00. You pay $9,900.00. I mean the interest on $100.00 shouldn't be that much. Wrong, you've carried a balance of $10,000.00 for your entire billing cycle. Even though you nearly paid all of it off, you're charged interest on that $10,000.00.

So then what do you do? I mean what happens if you're soooo close to paying off the bill, but you just don't have enough money? Well although carrying a credit card debt, and paying debt with debt is not the best thing to be doing, and you should really be living within your means, this situation can happen to even the best of budgeters. Although some people may not agree with this, I would prefer to pay the least amount of interest if possible. I work hard for my money! So this is when you need something as back up. A line of credit, or a second low interest credit card. Although paying debt with debt is not the best case, and should not be used every month, it can really save you money. You can pay off that last $100.00 with the line of credit, or the lower interest credit card,allowing you to pay your bill in full, thus avoiding interest on that $10,000.00, and only paying interest on the number of days that your line of credit or your lower interest card carries that $100.00.

However, a couple of things to be aware of if you have to do this:
1) You want to pay off that $100.00 ASAP, as with cash advances, unlike with purchases where there is a grace period where you can pay by the due date and avoid interest, on cash advances you pay interest from the moment you advance the funds.
2) Do not to this with a regular credit card, cash advance interest rates on a normal credit card are much higher. Most banks have a lower interest credit card, some with a small annual fee, these charge the same lower interest on purchases and cash advances.

Ok, so now you`ve gotten me totally messed up, and why would I ever use my credit card? Well credit cards can be useful:
- When you're young, if you use them properly, you can build up a good credit score to purchase a home.
- Some have rewards attached to them. We have a travel one that has already paid for itself 10 times over.
- Cash management, the grace period of not paying interest gives you time to plan your payments around your pay cheques. If your current billing cycle doens't match up, just give your credit card company a call and they can align your cycle so that as your pay cheque comes in, your bill is due a few days later.

I don't want to say avoid a credit card, because I use mine for every single purchase. But hopefully this opens your eyes to how they work, and why you need to pay it off every single month.

Friday, September 27, 2013

And So It Begins

You’re 18 years old. You’re FINALLY an adult. You’ve been waiting your whole life to grow up, and now it’s here.

You are finally legal to grab a drink, well in some provinces at least, you get your first job, and you’re offered your first Credit Card. You're introduced to freedom that comes along with being legal, you go out with friends, go shopping with your pay check, and you're thinking about moving out.

What you don’t realize is that although you’ve been in school your entire life; learning “everything” you need to know to become a successful adult like the molecular composition of Aluminum, the full biography of William Lyon McKenzie, and that the log 1 = 0, you know the important stuff, you did not learn one very important aspect of everyday life; how money works. You don’t realize that carrying a $1000 balance on your credit card will grow to $1,219.39 in a year,or that if you make $15 an hour it takes 33 hours of your time to pay for an Ipad. Growing up, we were taught never to ask about money, it's rude. So we didn't and as a result we didn't learn and we became financially ignorant adults.

To make matters worse we became financially ignorant adults during a time when credit started being extended faster than you can say "show me the money," and so we began to think that perhaps money did grow on trees, in the form of credit. Until, one day, you realize that perhaps credit isn't magical money that grows on trees, rather it has to be paid back, and you've paid a lot of your hard earned money in interest.

“Most debts are fun when you are acquiring them, but none are fun when you set about retiring them." -Ogden Nash.

The point of this blog is about financial enlightenment for the young adult. I'm just a twenty-something year old in the finance industry, studying toward my Chartered Financial Analyst designation, who has worked extending credit at the bank. After speaking with some of my friends and family, and working at the bank, it surprised me how much most people just don't know about personal finance, despite it being the basic pillar of our lives. So I decided to do something about it. This blog is intended to give some useful information in everyday language to help the twenty something year old, and even older, make sense of the world of credit cards, budgets, investments, and economics.