plonkee money an english-er's thoughts on personal finance

January 28, 2009

the first piece of financial advice I received

Filed under: credit and debt — Tags: , — plonkee @ 7:54 pm

Although my parents both used to work in finance, they actually weren’t that big on financial advice. We had savings accounts as kids, but were not particularly encouraged to save money, and most of the time we didn’t have regular pocket money. Our grandparents lived a few hundred miles away so we didn’t see them regularly, but they used to save pennies for us – I’m never quite sure what used to happen to the money, but I do remember the excitement of counting it all out and splitting it equally amongst us. Amid all this vagueness, one occasion in particular is clear. I remember my mother telling me in the supermarket, that:

“credit cards are fine, as long as you always pay them off in full”

At the time, I didn’t recognise it as financial advice. But, you know, I have always paid my credit card in full (apart from those times that I’ve made a late payment – I’m not very organised), and it’s been a good habit and trait. And I don’t pay off my credit card in full because it’s sensible to do so (even though it is). I pay it off in full without thinking because that’s what you’re supposed to do.

I should probably re-examine some of the other messages that I follow unthinkingly though. Who knows what kind of stupid things I’m doing, just because someone told me as a kid.

November 8, 2008

rubber cheques

Filed under: credit and debt — plonkee @ 11:43 am

It’s incredibly embarrassing if you write a cheque and it bounces, even if it’s probably completely not your fault.

I just had a phone call from someone I haven’t actually met, about an amateur music event I’m going to next week. The cheque that I sent him has bounced. He was very nice about it, and just said to pay on the day.

I was too surprised on the phone to work out what had happened, thinking about it now, there are two options. The first is that my inability to sort out my finances properly meant that there was no money in the account. This is not likely because this guy said that he’d just received a letter from the bank, which implies that he put the cheque in within the last few days. I was only paid a week ago. But if this is the case, then obviously, I’m too blame.

The second option is almost completely not my fault. I paid for this thing weeks and weeks ago – sometime towards the end of August. Since then, my house was broken into and  as I was concerned that one of my chequebooks had been stolen, I  had them all cancelled. So, the cheque – which wasn’t cashed straightaway – would have been declined. Apart from possibly having a better idea of which cheques still had to be paid, I’m not sure that there’s very much that I could have done to prevent this.

Rubber cheques are not nice, even if they’re probably not your fault.

October 20, 2008

credit in the credit crunch

Filed under: credit and debt — Tags: , , — plonkee @ 12:00 pm

The thing that caused the current financial crisis, appears to have been a bubble, much like the tech stocks bubble, or the tulip bubble. Of course, we would be the ones ending up living through another financial system bubble (like the one in 1923 or 1873).

During a bubble everyone pays over the odds for some commodity, believing that the *fundamentals of the market have changed*. The correct response is of course that *no they haven’t*, at least not by that much. Anyway, when the bubble bursts, the thing that everyone was paying ridiculous amounts of money for, they now won’t touch with a barge pole.

When the tulip bubble burst in 1636, the bulbs became worthless almost overnight. Even the really pretty ones. Now, I don’t know if you’ve been to a gardening centre lately, but they don’t exactly give away tulip bulbs. They aren’t even the cheapest bulbs you can buy – especially the variegated ones that caused the bubble in the first place. After prices have become overhyped, the market corrects goes a bit too far (everyone hates to lose) and eventually they find a stable value.

In this case, the things that have been overvalued is certain types of debt. People paid too much money for debts, and now they don’t want to pay any money for them at all. It gets a little bit into head-splitting territory because there are negative numbers floating all over the place, but essentially paying too much money for a debt is equivalent to charging too little interest on it and/or loaning the money too freely. Similarly, not wanting to pay any money for debts is equivalent to charging high interest on it, and/or refusing to loan money at all. This is the situation now.

What does this mean?

As far as high finance and the banking system goes, I wouldn’t have a clue. But maybe I’ve got some ideas about how it might affect ordinary people.

I suspect that for some time it may be more difficult to take out any form of loan. This means it will be harder to get a mortgage, a car loan, a credit card, a personal loan or an overdraft. What can we do?

  • save up a bigger deposit
  • provide more proof of income for loans (e.g. wait until you’ve done your tax return)
  • keep on top of credit scores and reports
  • keep up to date with loan repayments
  • inform your bank etc at the first sign of a problem
  • live within your means

We all know anyway that consumer debt is bad. It’s always a great time to pay off excess debt and now is no exception. A lack of available credit shouldn’t affect too many sensible personal finance people. If you’re hoping to buy a house in the near future, or take out a car loan then you need to be more careful about your credit report – make sure it’s accurate and don’t incur any unnecessary dings on it. You should also have more income documentation especially if you’re self-employed and it can’t hurt to have a bigger deposit saved up.

As soon as you think that your debts might start to become a problem contact your bank / credit card company etc and explain. Anecdotal evidence suggests that they are less accommodating than they used to be, but they are always more helpful if you approach them sooner rather than later.

Finally, living within your means is the golden rule of finance. Not needing any debt is extremely helpful if debt is hard to come by.

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