Financial Tips to Help You Avoid Pitfalls and Make the Most From Your Money

A Sense for Money

Things like credit cards and investing can be confusing, and this confusion could end up hitting you in the wallet. So if you don’t know, don’t be afraid to ask the professionals. Remember, it’s your financial future at stake.

Regarding credit cards, I wonder how the card issuers make a profit when they have all those zero percent installment payment plans?

When you see a special offer to buy an item at zero interest over six months it may not always be as special as it seems. Try asking the retailer whether they will give you a discount if you pay with cash. If they offer you a 10 percent discount then what they are really saying is that you are paying 10 percent for six months’ credit. This is a high interest charge for a short-term loan.

It’s also worth noting that it may well be the retailer rather than the card issuer that is shouldering the cost of the zero installment. The card issuer may have an agreement with the retailer on how to share the cost of financing the purchase and it may well be that the credit card issuer bears very little of the cost. At one extreme they may take your money each month, take a commission and pay the balance to the retailer.

In fact, credit cards are often highly lucrative operations for the issuers. A big source of income is transaction fees from retailers. When you make a purchase using your credit card the retailer will normally pay a percentage of the purchase to the card issuer. Issuers also make a good profit from interest and late payment charges, which you will have noticed if you have ever failed to pay the full amount of your credit card bill.

Then there are the annual fees for many credit cards. You may get an introductory offer of no fees for the first year, but issuers often introduce or increase fees once they have you in their clutches. All in all, no need to worry about card issuers going hungry for lack of profit.

I have a job and salary but want to increase my net worth. Is investing only for the rich?

If you are earning money and are above the poverty line then you should be investing. The simple reason is that one day you will not be earning money, whether due to retirement, redundancy or bad health — and at that stage you will still need to eat and pay the bills.

As a rule of thumb, if you save between 10 and 20 percent of your salary every month during your career, you should be able to live comfortably in retirement. So investing is for everybody who is above the poverty line.

It is hard to have the discipline to set aside some cash each month, especially when you are young, but not as hard as it is to pay the bills if you are retired and have no savings to fall back on.

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