Expenses

This category looks at stuff that we spend money on!

Minimum Repayments: That’s EXACTLY how much? How long?

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Once a month my credit card statement drops on the mat, and I get a chance to peruse my spending that previous month. Actually, this month’s spending was quite minimal and mostly anticipated.

(All Currencies: NTD).

First, we had a nice meal at the beginning of our annual break. That came in at $1518 for two, including a buffet, a nicely prepared main course, and 10% service charge. The restaurant is called Dante’s and is located inside the campus of Taipei National University of the Arts! They serve Italian, French and American style cooking with fresh local and imported ingredients. On Saturdays, they are SUPER busy, and the staff need a bit of politeness training… but we go for the food anyway! We’ll go there if you visit me in Tamsui!

Second item on the list was an odd one: a 2-year domain purchase of my business site in Chinese. This was provided by UnicodeDN and cost me the grand sum of $1314. I’m now thinking of adding another with another variation of our company name.

Third is our regular payment: a combined life insurance and investment product from Cigna. I counselled my wife NOT to buy this, but she didn’t buy it for the obvious reasons. She felt that she was helping her sister go through a rough patch! And indeed her sister has done fabulously and gone on to become a local financial adviser, having passed some tough exams (and that’s one thing Taiwanese are good at: setting exams!). We are definitely not making a lot of money out of this one, as in general, such products don’t offer good value: there are just too many ways to take commissions, including a standard commission, unit transfer fees, I’m sure there’s a currency commission, and, most certainly, there is a credit card fee, of course! In fact, once you consider all of this, I’m surprised that we don’t OWE Cigna money for this product.

Fourth and Fifth payments are for two nights in different hotels while we had a three-day trip to some of the mountains around Lala Mountain in Taoyuen County. I’ve included a You-Tube video for you to get some idea what the area is like. Though the first night we stayed at a hotel near the Yi-lan, in a tourist zone area. Quite pleasant on the East Coast overall, I have to say. Then we drove up to the LaLa Mountain area where we stayed at another hotel called MingChih National Forestry Resort. Neither of these was particularly cheap. But getting a chance to stay there was wonderful, and we were lucky to get a vacancy on the spot. We had a little cabin with NO airconditioning… it was VERY cool outside, in fact about 21C, compared to down on the plains where the temperature and humidity were much higher. Total cost: $6170 for both nights.

There were no penalties or interest charges to pay off this month, either. That left us with the grand total of $11,002 to pay on our credit card, or we could pay the minimum balance of $1100. We also earned 551 bonus points to add to our total. Naturally, we paid it off entirely. A quick look at the calculator below showed us why: we saved about $606 doing this, and it would have been paid off in a year exactly.

repay

How was your August Credit Card spending? Did you spend wisely or blow your budget? Did you pay it off at once or slowly? Use the calculator to find out how much you would spend. Don’t worry, you can simply ignore the British Pound sign and assume dollars or euros.

Buying a house: saving for the deposit? It does have advantages…!

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With the advent of 100%+ mortgages, borrowers these days find it easy to borrow the money they need to buy the house they want. It didn’t always use to be that way. In fact, up until the recent credit boom, borrowers were required to pay a deposit on the house from their own savings. In fact, in Taiwan, it is still this way. For new houses and pre-construction units, the deposit is actually between 10%-20%, but for second hand units, it is typically 30%-40% of the sale price.

When my wife and I first married, saving any kind of deposit was quite difficult, because we were starting from nothing. We had nothing in the bank after our wedding; so purchasing any property was simply out of the question. If we had been living in the UK or US, it would have been quite simple to go out and borrow the money for our house, our furnishings, and everything else we needed for the house.

Looking back, though, I realized that the fiscal discipline that we learned from saving for the deposit taught us much more about how (dare I say NOT) to manage our cash, cash flow, savings and credit cards. So, today when I was chatting with my good friend, Cindy, about buying a house. She had just moved into her own apartment, and was dreaming about buying a house. But it’s difficult when you are starting out to save money, because even renting a house requires quite a bit of cash.

After I got home, I realized that it was having to save for the deposit that helped us to manage our cash flow much better. It took us over 5 years to save up enough for a house, but we did it! And, at the beginning of the five years, only my wife had a proper job!

So why? Simply, because if you can save a cash deposit, then you have learned a number of important skills for a house-holder:

  1. you can manage your income/expenses carefully;
  2. you have budgeted properly;
  3. you have consistently saved up money;
  4. you know that it’s possible to manage your money without spending it all; and,
  5. by committing your own money to your house, you are making an emotional commitment that having a 100% mortgage may not allow because you are risking your OWN money.

Together, these qualities are more than enough to prepare your for the task of buying and managing your own house. More importantly, with these skills, you are setting your stage for managing your finances for the rest of your life (God willing!).

In addition, when you do purchase your house, you will have a ton of advantages that you didn’t reckon on in the first place:

  1. lower overall mortgage rate than 100% mortgage;
  2. lower overall mortgage payments vis-a-vis if you had paid for the house in a 100% mortage!
  3. a better credit record because you’re not overleveraged;
  4. you’re not overleveraged;
  5. in a tough seller’s market, you’ll have some more ‘protection’ against negative equity situations;
  6. you may even be able to use the savings habit to pay off your entire mortage much sooner saving a lot of interest payments over the term of your mortgage!

So, if you are forced by circumstances to save for a deposit for your house, look on it as an opportunity not a burden! We learned a lot… Seize the chance to save! No matter how hard it is for you to cut back, it will be worth it in the end.

Did you have to save for a deposit for your first house? How much was it? Was it difficult or easy for you to get it together? I’d love to hear how you

Did you do an effective cost-benefit analysis before getting your credit cards? If not, read on!

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We’re kicking off this week’s feast of finance stories, with Credit Cards. Most people have one or two in their wallet, their pocket (the washing machine? or the freezer!), some people have a lot more than two.

Universally accepted, convenient to carry, it’s now everyone’s “Flexible Friend” the world over especially for the many diffferent kinds of credit card rewards that you can get nowadays. But few people really calculate the personal cost of using a credit card because for most transactions, the actual costs are hidden away in the statement. Rarely do you see the extra cost that credit card transactions incur until you open your credit card statement.

In fact, credit cards can be quite expensive to use. I’ll summarize a list of fees that I’m aware of. I hope my commenters will add others that I don’t list. Are you paying any of these?…

1. Annual Fees
When you apply for your credit card, usually you will face an annual fee. In many cases, these are waived by the issuers, but not always.

2. Cash Advance Fees
When you go to an ATM, you will incur a range of fees, including ATM fees, Cash Advance Fees, and Loan Interest will be charged from the time you borrow the money!

3. Foreign Transaction
These costs (like normal purchase costs) are ‘hidden’ costs, even when you see them on your statement, you’ll notice that the costs are difficult to figure out: they likely include currency transaction fees, as well as additional fees. Typically, these rates are about 3% of the total of each transaction.

4. Interest Payments
Naturally, this is the biggest source of expenditure for most normal users of credit cards. In fact, this blogger was guilty of paying interest fees unnecessarily for six months because I only thought it was $20 or so. What’s the big deal? It was only when I totalled the cost, that I realized how expensive carrying this kind of debt can be. I ended up paying nearly $200 in interest payments that I could have easily avoided.

5. Penalties
Penalties are incurred in a number of horrifying ways, too: Late Fees, Overlimit Fees, and Increased Rates of Interest Payment.

a. Late Fees are usually incurred when the bill is paid late, or the money is received late by the Credit card issuer. Late Fees may be an increased interest rate and/or an actual penalty fee.
b. Overlimit Fees are incurred when you go over the limit of your credit amount. Typically, you can be charged a set amount for each month you are over the limit. This can happen either accidentally or deliberately. For example, when I was in the UK two years ago, I rented a card. I also paid for the flight tickets on my credit card. Of course, this pushed me almost to the limit. I was surprised that I didn’t go over!
c. Increased Rates of Interest can be applied for a number of reasons: nearing or exceeding your limit, decreasing credit score, or late payment on other loans (even with other institutions) or credit cards.

The worst happens when all three of this combine. A late payment may incur a penalty that pushes you over the limit of your credit card, and boom! your interest rate just jumped 3% or 5% or more!

6. Nickel and Dime Charges
Lost statements, replacement cards, convenience checks, are a number of ways that users can find themselves paying through the nose for additional services.

7. The Sell
There are also a bunch of ways that credit card companies can upsell services and products to your credit card: insurance for health, unemployment, life insurance, etc., are amongst a few items that come to mind. Naturally, these are included and can be a great convenience, esp. if they are best of industry products. But choose wisely.

8. The Retailer
There are a number of fees that the retailer must cover when taking credit cards: including set up fees, regular gateway fees, transaction fees (a base fee plus a percentage of the price), and can be as high as 6% for some cards. Most merchants have no real choice but to take credit cards. These costs are of course passed onto customers in higher prices (not just credit card customers, either!). The bookstore I worked in refused to take one particular card for the high cost of its interchange fees, a cost that was invisible to the customer buying the books.

Do the Due Diligence
Naturally, I’m not advising people NOT to have credit cards. Why would I? That’d be silly. In fact, I have two credit cards in my wallet right now. In our credit based societies, developing a credit history is as important as having an ID card or working. But it’s a good idea to compare credit cards carefully, not just the benefits, but also the costs (the apparent and the hiddent one).

For example, if you are looking for a card that can do balance transfers, purchase points, rewards programs or whatever, you need to read the fine print on each agreement. And you need your pocket calculator to work out whether the benefits are as great as they seem!

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