The Theory and Implementation Of Float and the Value of Credit Card Use

Editor’s Note: This column is designed to provide food for thought and should not used to replace financial advice from a qualified expert. Colorado Citizen Press Does Not offer financial advice.

The Concept of Float

A basic definition of Float is making a purchase first, and have the expense later.

In an Economic class I attended at Colorado State University (CSU) in the 70s, float was discussed as the time it takes for a check written to a merchant to actually hit your checking account.

I know very few people that write checks anymore, but the theory of float still works with credit cards.

Using most credit cards allows you a float time with no interest to pay for a purchase, usually 30 days from the statement date.

Unfortunately, nearly half of millennials do not use credit cards like this. (According to George Washington University)

What are they doing wrong?

Nearly half of millennials only pay the minimum payments on their credit cards.

Yet, from the same study, 74% claim they are good at dealing with day to day financial matters.

Using credit cards with float in mind should mean that you have a mindset and the ability to pay that charge off when due or you need to find a way to defer or delay the credit card interest.

Credit-Cards

The Value Of Credit Card Use

Using credit responsibly can have a positive affect on your credit score. This can open the doors for low interest loans and favorable credit decisions in the future.

Many credit cards offer cash back options or other perks like airline miles or discounts at hotels.

Fraudulent charges on your credit cards, if disputed in a reasonable time, usually will result in no financial obligation to the real card holder.

Some credit cards offer free extended warranties with a purchase with their card.

Some cards will allow you to have deferred or delayed interest on major purchases.

With most credit cards you can now track your purchases online.

In Conclusion

Credit card use can be clean, convenient and safe.

However, if not controlled it can wreck havoc on your financial situation.

Once you get to the point where you can pay off your balances every month, or even just pay the minimum due on time to a deferred or delayed billing charge, don’t look back.

It should become an obsession with you.

Pay off most cards and find one that pays you back with something you like, either cash or some kind of reward, and one that you feel comfortable with.

Bottom Line Boomer has lived in Colorado for 40 years and has been a lifelong student of personal finance. His goal is to help provide a much needed education on personal finance for today’s world.

The Process and Necessity of Having an Emergency Fund

This is part of the ongoing series of articles by Bottom Line Boomer. The purpose is to help individuals gain financial knowledge for today’s world.

What is an Emergency Fund?

An Emergency Fund is accessible money to help maintain your financial life when an emergency occurs.

Think of it as your own personal lifestyle insurance.

According to a recent survey, nearly half of American adults say they could not cover a $500 emergency expense.

Such expenses like unexpected medical bills, home or auto repair, a sudden need to travel to visit an ailing friend or relative, or even a job loss would send many Americans into debt!

Without these funds you may be forced to use high interest credit cards, take out loans, borrow from a friend or relative, or even file for bankruptcy.

EmergencyFund

How should I setup an Emergency Fund?

The funds should be accessible as you may need them quickly.

I recommend having more than one fund that you can access.  For immediate and smaller expense situations, you should have actual cash on hand.

This fund will be the smallest but the most accessible.  This should be stored in a fire-proof lock box or a safe.

Once you have actual cash on hand safely stored, move on towards setting up a savings account.

The bulk of the readily available funds should be saved in a savings account, preferably not one that you would see every day.

Other options for very dire situations can be cash value in a life insurance policy, after tax funds in a 401k, ( as long this is not part of your retirement funds), and a home equity line of credit.

My recommended fund value varies from a minimum of $1,000 to 3-6 months living expenses.  I feel 3 months is adequate for most, but your situation may be different.

There are many ways to fund these accounts, but most importantly you should be passionate and make it fun!

Make your weekly savings goal attainable.

Saving just $25 per week will give you $1,300 in only one year!

Cutting some wasteful variable expenses weekly will easily net the $25.

But other ways are to put any tax refunds, bonuses from work and even some extra money from a fun part time job into your Emergency Funds.

In conclusion, an Emergency Fund is the foundation of any financial plan.

To review, start with actual cash on hand in a safe. Then, start a savings account and have a disciplined saving budget.

With these funds in place you will have peace of mind knowing that you will have a bridge over troubled waters and will help you begin to secure your financial future.

Next week we will cover the theory and implementation of float and the value of credit card use.

Bottom Line Boomer has lived in Colorado for 40 years and has been a lifelong student of personal finance. His goal is to help provide a much needed education on personal finance for today’s world.

Personal Finance: A Necessary Education

Finance

As someone who was born in the 1950s, I’ve seen a lot of changes in our society.

Growing up, I heard stories of the Great Depression, then I saw gas shortages and the savings and loan bust, and most recently the dot com bust.

To put it mildly, our finanical world has gone through a lot in my lifetime.

Do today’s youth understand how easy it is to lose everything?

Many of today’s youth have never heard stories of what happened during the Great Depression.

Many of today’s millennials in America are so detached from poverty that they can barely understand it.

I personally knew people who were living in conditions that would shock many of today’s millennials.

That’s why I wasn’t surprised when I read this recent survey on the financial health of Americans.

The Survey: 49% of Americans Live Paycheck to Paycheck

Nearly half of all Americans are living paycheck to paycheck according to a new survey done by GoBankingRates.

Whether it’s a friend, relative or co-worker, we all know someone who is struggling to get by financially.

What’s especially concerning to me is that many (if not most) Millennials and younger Americans have no idea how to budget their monthly income, account for expenses or even understand what they are getting themselves into when they use a credit card.

I’m not alone in thinking that financial knowledge should be included in any person’s education.

I’m hoping to help provide some useful information for America’s youth by writing weekly posts on Colorado Citizen Press.

To start, I want to lay out a basic outline.

So, what are the key fundamentals that people should learn for financial education?

In my opinion, some of the most important steps are:

  1. The process and necessity of having an emergency fund.
  2. The theory and implementation of float and the value of credit card use.
  3. The importance of meal planning and the proper use of a grocery shopping list.
  4. Planning for the future and retirement.
  5. Tips to save money on everyday activities.

I’m going to expand on this in future posts.

I hope you will provide any information you think is important for financial education in the comments below.

Bottom Line Boomer has lived in Colorado for 40 years and has been a lifelong student of personal finance. His goal is to help provide a much needed education on personal finance for today’s world.