Kuta Beach

Kuta Beach

Saturday, 4 September 2010

Saving Money by Collecting Coins

There are many benefits of credit cards. There are credit cards out there that have no annual cost. You don't pay anything for them but when you buy things with them you get automatic insurance as well as other benefits, such as cheaper petrol. So long as you pay off any debt you have every month, you will not have to pay any interest. Examples of free credit cards that allow this include the Bankwest Zero credit cards and the Coles Group Source credit cards. I highly recommend both of these credit cards. In fact, I have both.

There is one major problem with credit cards and it is not really an economic argument but rather a psychological argument. The problem with credit cards is that is that they make it easy for you to spend money. It is so easy to be walking in the mall and all a sudden you see something you like. It is so easy for you to whip out your credit card and then buy it. Because it is so easy to use a credit card, most people (me included) tend to overuse it.

Debit Cards Don't Help

Many people think that they can replace their credit cards with a debit card and the problem is solved. It is believed that debit cards are better because you are spending your own money and therefore you will be careful with it. If you spend someone else's money, you won't be careful with it. I think this is illogical. In fact, I think debit cards are quite bad. The problem with debit cards is that it is linked to your transaction account and if your balance becomes zero, the bank will charge you a penalty (maybe $40 or so). It is much safer to simply fill up your credit card with lots of cash so that your credit card account is in surplus. Then you use your credit card as if it were a debit card. If for some reason you make a mistake an go under, it doesn't matter because you will just be using a credit card as if it were a normal credit card. It is true that the bank can slap a penalty on you if you go over the credit limit on a credit card, but having a debit card does not fix that problem.

Using Cash Helps

For small purchases, using cash is good. Cash is good because it allows you to spend a set amount and you cannot go under. With debit cards and credit cards you can spend more than you have. With cash, it is impossible to spend more than you have. If you have only $10 in cash in your hands, you cannot buy something worth $20 with cash.

However, there is a problem with cash. If you carry around a large amount of cash, it is too easy to spend it all. If you carry around $5000 worth of cash in a mall, apart from the fact that there exists the risk of theft (assume you keep your cash in the bank and take it out via the ATM) it is still very easy to spend the money. It is easy to spend using credit card, but it is almost as easy to spend cash. In practice, any cash you have in your wallet is as good as gone. It is so easy to spend that you will find yourself spending it on lattes or sandwiches. Using a credit card at a cafe is frowned upon because it slows things down, but every shop or restaurant loves receiving cash. It is so quick and easy to hand over cash and if you carry high denominations of cash, you could lose money very quickly.

The way to fix this problem is to leave in your transaction account or wallet only the amount you need for the week and then put aside the rest. E.g. if you are paid $1500 per fortnight, you can estimate that one meal will cost $10 and you will have one meal per day for 10 days, which comes to a total of $100. You leave $100 in your transaction account and put the remaining $1400 away where it is difficult to access it, e.g. a term deposit. This is a good idea because it ensures you will only spend $100 for the forthnight. Assuming you have no credit card and only use your ATM card to withdraw money before you spend it and don't withdraw more than you have, then you will only spend $100 per fortnight, which is quite little. The problem with this is that you may be in an emergency situation in which you need money. Suppose you only have $20 in your transaction account and you are in the city on a Friday night with your friends. You have a meal and then all of a sudden you have no money in your bank account. Suppose you are driving home and all of a sudden you need to fill up on petrol. If you have no money, you may be stranded. This is why so many people carry credit cards. A credit card is useful in case of an emergency, but like a double-edged sword although the credit card can help you during emergencies, it can hurt you because it is easy to spend money. I have found a solution to this problem. It involves collecting coins.

Collect Coins

I carry around credit cards, but during periods in my life when I want to save money, I keep my credit cards locked away in my bedroom. Whenever I buy something with cash, I put all the notes in my wallet and put all the coins in a special zip pockets on my jacket. When I get home, I put the coins into a jar. Once this jar has got enough coins, I put some of those coins inside my car--in the cigarette box, in the glove box, etc. I also put coins in drawers in my desk at work. There is a risk that the coins will be stolen, which is why I tend to only keep silver coins in my car and at work, and I only keep in total about $20 to $40 worth of silver coins both at work and in my car. This means that if some thief steals the money, they won't steal much and it simply won't be worth the hassle to carry all those silver coins just to steal a small amount. I keep the gold coins locked up in my house--but I don't have much.

Why is it a good idea to do this? If I wanted to save money, I could lock up my credit cards and then use cash all the time. If in the event I run out of cash, I can simply tap into my coin stash. For example, if I am driving and I have no paper money in my wallet and all of a sudden my car needs petrol, I can simply collect silver coins in my cigarette box in my car and use that to buy petrol at the petrol station. It is true that using silver coins to buy petrol is slow and embarrassing--but that is the point! Because it is so embarrasing and slow to use silver coins to buy something, you are less likely to spend money (unlike if you have a credit card or paper cash). However, although silver coins are slow and embarrasing to spend, in the event of an emergency, you can use it.

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