MoneyMinding Monitor

Getting Back on Track When You’ve Been Derailed

by Catherine Novak, based on MoneyMinding’s 12 Simple Steps by Tracy Piercy

Train wrecks.  Derailments.  From where I write this in British Columbia, occasionally our newscasts feature images of a chain of heavy train cars lying on their sides, spilling their contents into a river canyon or a ditch, looking both ungainly and fragile as their small wheels spin helplessly in the air.  It’s never pretty, and clean-up is often difficult.  Is it any wonder that when crises happen in our life, we sometimes talk about being “derailed”?

For long periods of time we chug along the track that’s been set out before us, delivering our goods, sheltering our passengers.  Then, WHAM!  A rockslide on the track, or a cow, or even the “wrong kind of snow” causes us to lose our grip, or get jerked off the rails.  Whether your metaphorical derailment is a physical injury, a relationship breakup, a sudden financial loss, loss of a job, or death of a family member… these are the circumstances that life throws at us, and putting ourselves back on track often takes time and a series of small steps.

Ironically, often the “life crises” are compounded by money crises.  When you can’t work because you are sick or injured, or you are caring for someone else, that can hit you right in the wallet.  So what are the steps you need to take get moving forward again?

The first step, and it’s not an easy one when you are knocked over, is to be grateful for where you are.  Unlike trains, you are a human being, capable of love, appreciation and gratitude even in the most unlikely circumstances.  It might just be “Thank heaven I’m not dead!”  or “I’m so glad I have family members who love me,” or “Well, I’m grateful that this lousy thing is done.  Let’s see what I have left to work with.”  When you know what you are grateful for, take the time to record your thanks – in a notebook, on index cards, or on sticky notes by your bedroom mirror.  Don’t let those items of gratitude slip out of your life.  Recreate your moment of thanks daily.

This is the perfect time to reflect, reassess, and to make new goals that take into account the life event that you have just been through.  When you have your goals, write them down and carry them with you. 

Obviously, these first two steps are much broader in scope than you will find in most financial repair “how-tos”.  But the truth is, financial health is built on a foundation of overall well-being. When you have these first two priorities in place, then you can ask yourself, “What is the next baby step I can take to reach my goal?”  That next step may be to record your daily expenses, so you know where your money is going as well as where it is coming from.  It may be to start putting aside your change, so you can use it later for “guilt-free” purchases.  Do that one next step consistently for 30 days, so it becomes a part of who you are.  If you try to change too much at once, especially when you are already dealing with the larger change of your “derailment”, your new habit may not stick. 

Expect success, at least in this one manageable area of your life.  Taking charge of your money does not have to be a struggle, provided you approach it in a step-by-step fashion.  You may even find it to be one area of calm and control in an otherwise turbulent situation.

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Be Smart When Using Credit Cards for Investing

Question: How many credit cards can you leverage for investing before it damages your credit?

Answer: If only the answer were as simple as a number!  I could say, well, 9 - and you’d be on your way!  In reality, the credit card companies and credit bureaus don’t care whether you are using your cards to buy stereo equipment, or to invest.  But they do care about how you manage your credit. 

Here are the areas to be aware of:

• The effect on your credit score when you fill out a credit application.  Each time a company or financial institution makes an inquiry, it can adversely affect your credit rating.  If you fill out a credit application, be reasonably sure that you will qualify for it.
• The relationship between your outstanding balance and your limit - you should use only 1/3 of your available credit at any time.  Leave lots of room!
• Your frequency of use - it’s better to use a card regularly, which can be as little as once a year.  Keep it somewhat active.
• Overall history of the card and the length of time you’ve had it.  A long credit history with a couple of bumps and snags is better than a short history where you are an unknown quantity.
• Your total debt-to-service ratio; in other words, your debt payments compared to your income. Again, keep this to a maximum of 30%.

If you keep within these guidelines, you can use the credit available to you to fund wonderful income-generating projects, or to take advantage of a terrific opportunity and have a terrific credit score.

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Should I cancel my credit card?

Some people, in an attempt to control their spending and get out of debt, believe that closing their credit cards is a smart financial move. But is it?

Having access to credit is actually of huge potential benefit.  It’s how businesses are built and fortunes are made.  It’s an indication that lending institutions have faith in your ability to make timely payments.

You can actually harm your credit rating by closing a long-standing card.  The longer you can show a history of good credit, the better your credit score will be. 

Of course there are ramifications of thinking your credit card is closed when you are actually carrying a balance.  As well, if that credit card charges an annual fee, you might be surprised by a bill you did not expect.  On the whole, you are better off keeping a credit card with zero balance and using it once in a while, and keeping a regular watch on your credit bureau as part of your overall financial management.  

Likewise, having access to credit and a complete financial plan to achieve wealth is also a bigger benefit than closing a card.  There are only a few times when it might make sense to close a card, such as when it could potentially interfere with other low interest, unsecured access to credit, but for the most part – keeping your cards and monitoring them is the wealth strategy I would recommend.

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Protecting Yourself When Using Debit or Credit Cards

Many MoneyMinding members and advisors attribute their success, at least in part, to the money-management systems they learn to implement in the MoneyMinding program – including day to day spending and banking activities

When the banks all give different answers about consumer protections for credit or debit cards, you know it’s time to take matters into your own hands and put some systems together so you protect yourself. 

Most people have just one bank account which they use for all their transactions.  You can easily limit your exposure to theft or fraud by having a separate bank account for your debit card, and by having a low-limit credit card for day-to-day spending.  The low-limit credit card and its corresponding bank account work well for on-line purchases as well. 

A debit card account is handy because it simplifies your money tracking to have that account separate from one where automatic deposits and withdrawals take place.  You will keep better track of your balance, and should a thief swap the PIN pads and gain access to your account, it’s only a portion of your money that is at risk, even though the bank usually guarantees against theft. 

Higher-limit credit cards are excellent for major purchases and investments that benefit from the warranties and insurance provided with credit cards

Finally, you can give yourself first-class protection and control of your money by developing a specific strategy for using your cards (i.e. type of purchase or particular retailer such as gas or groceries) and using cash for everything else.   Cash is tangible in a way that cards are not, and there’s nothing like a wad of bills in your pocket or purse to add to your wealthy mindset.

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The Best Credit Cards

With the debt crisis getting a great deal of attention in the United States, we often get sent publicity leads that ask for some expert financial help on credit and debt issues.  Here is one that came from a website geared to newlyweds - I’m posting our answer below.

 I’m looking for a prominent financial expert to guide young newlyweds on choosing the best credit cards (what to look for, rewards, interest rates, etc.).

Choosing a credit card should require the same research and planning as does choosing an investment or making a mortgage decision.  The problem people have with credit is largely because it isn’t part of a strategic plan. 

Credit card debt isn’t bad – it is an excellent tool to recognizing lifestyle choices, and access to credit is a fabulous tool to create wealth or to reach personal goals.   For example, if you are choosing your first card as a newlywed couple, now is the time to take a look at your goals - what are you working toward?   Is it travel?  There are cards that collect travel rewards.  If your goal is a new car, you can get a card that will reward you with a cash rebate when you make your purchase.  If you are building or renovating, you can even get affinity cards for hardware stores. The choices seem limitless. So pick your goal first, and then go shopping for your cards.  Once you have your cards, then develop a strategy to maximize the benefits you receive while creating a spending system that fits your lifestyle. As for interest rates, they matter less when you carry a low balance or none at all, and they are just part of the equation when factoring the return on investment you receive from purchasing on credit.  If you use your credit card for business purchases, what is the income that is being created as a result of that purchase?  And, if you are making a lifestyle purchase, the same applies:  what is the benefit you will receive as a result of the purchase?   Finally, one way to stay in control of your credit use is to ask yourself first how and when you will pay the bill.  How many hours, days or weeks of work will it take to make the money for your purchase?  And of course plan ahead so your credit cards become a strategic part of an overall financial plan.

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Questions from our presentations

MoneyMinding is an interactive system of financial education - we love questions and encourage them wherever we talk about MoneyMinding because it’s the best way to get people thinking about their own money strategies.  Here are some that we received at a recent eWomen Network evening:

•  Where can I find a reasonable source for a new small business loan?
• What is the fastest way to reduce personal debt?
• What is the best return on investment today?
• What are your thoughts on RRSPs?
• How do you live within a budget?
• How exactly do you buy real estate for zero down?

Each time we meet with people, either in person, on the phone or even via the Web, these are the kinds of questions that come up.  And there often isn’t just one answer - how you begin to make money work for you can be as individual as the style of clothes you wear.  But we like to work through the answers with our MoneyMinding members in interactive environments such as teleconferences, seminars and yes, even blogs like this. 

 So do you have a money question?  Enter it in the comments area (or anonymously to questions@moneyminding.com) and we’d be happy to look at it with you.  Depending on volume received it might take some time, but starting the money conversation is important to our business, and to your successful financial journey.

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