On December 30th, 2013, my wife and I cut up our credit cards to begin a journey that will last through 2014 and beyond. And what of the credit card remains? They are now guitar picks:
I made a goal for 2014. No, I am not going to learn to play the guitar. The picks are for my sons who play. I am committing that 2014 will be the year I become more fiscally fit. I won't share the specific numbers, rather just explain a little bit of my rationale and process as it relates to credit cards.
Author's Note: I hope you noticed that I used the word "goal" and not "resolution". I am not big on new year's resolutions, but I am very big on setting goals and action plans around accomplishing those goals.
One Thing I Learned From Last Year's Goal-Setting and Improvement Process
At the end of 2012 I set some aggressive goals for improving my levels of health and fitness, which included tracking everything I ate, eating more healthy while cutting down on overall calories, exercising a ton, and losing some weight. I wrote about the beginning of the process here: Accountability: The More Personal and Public the Better.
New year's resolutions usually work like this: spend 5 minutes thinking of everything I want to improve about myself and my family, write it on a sheet of paper, and then possibly never revisit that piece of paper or my thoughts on the subject again for another year. In contrast, in 2012 I spent a lot of time preparing for and then accomplishing all of my goals in 2013, which included 2 triathlons. You can read about one of them here: Don't Stop Trying Something New: Journey to My First Triathlon.
Why Finances Next?
With solid health and fitness habits in place now for more than a year, I was hungry to take on a new challenge, something to really put effort into for 2014. I had some financial goals for my family in 2013, but I really didn't give accomplishing them much attention. No surprise, I am not happy with the results.
During December 2013 I began re-acquainting myself with and consuming as much content on the subject of personal finance as I could. I learned nothing new, but just reinforced principles that I have been a little bit lazy applying in my life for the last few years. This motivated me to make fiscal fitness my next area of focus.
You know how the landscaper on your street is the only one that hasn't put their yard in yet? I feel a little like that, that expectations for me (a business and finance guy) are higher than for others. Maybe it's because I deal with those things all day professionally that I have been a little neglectful. Whatever the reason, I have enjoyed getting back to the fundamentals and basics of personal finance.
Coming off a year in which exercising 1-2 hours per day was the norm, seeking greater fiscal fitness seemed easy in terms of an overall time commitment, but possibly just as challenging in terms self-discipline. Life has taught me that it takes consistent self-discipline and tenacity to change my behaviors and mental perspectives for the better, and even more discipline and tenacity to keep myself changed. All of this is a hard and uncomfortable process, so the effort needs to be worth the process.
Pros & Cons of How We Use Credit Cards
I have two credit card accounts, an American Express that is tied to a Costco membership and a Chase Freedom Visa. For the record, I have nothing against these companies. In fact, they have been good to work with. I always pay the full balance on each card at the end of each period, never incurring any interest or late payment fees/penalties. I have purposefully tried to push as many expenses and financial transactions through these cards to maximize points and cash-back rewards, amounting to over $1,000 in 2013.
However, upon evaluating the last 12 months, I think we could have and should have spent less. Not a lot less, but definitely less. In fact, some research states that consumers behave differently depending on their payment medium. According to cash vs. credit mindset, credit seems to draw consumers into benefits while cash keeps consumers focused on price. The bottom-line is this: it is likely that we all spend more when we use credit, even if we pay our balance off monthly and earn a bunch of points/rewards.
The Debit Card Gray Area
While the research is clear regarding cash vs. credit cards, the research doesn't appear to be as conclusive when comparing credit and debit cards. In today's digital world, I just can't bring myself to carry around cash and always use it to buy things. I do too much online shopping to think of cash as a legitimate comprehensive solution. But I am motivated enough by the possibility of spending less that dropping the credit cards and converting to debit card use along with occasional archaic checks and cold, hard cash seem worth a try.
I earned more than $1,000 in rewards and points last year. By using a debit card, archaic checks, and hard, cold cash, will I spend at least $1,000 less in 2014? It may be a little hard to tell, primarily because I am doing several other things this year to try and reduce spending and increase saving (which I may detail in future posts). Cutting up the credit cards and turning them into guitar picks is a bit dramatic, but so were some of the things I did last year to accomplish improvements in my physical fitness.
Results So Far
I have now gone more than 2 days without a credit card. And, it is very uncomfortable for me. I find I am already more focused on price and more conscious of how purchases will affect my goals for the coming year. We'll have to see if this continues.
You have now been exposed to only a small portion of the entire plan I have in place for 2014. I have new accounts, debit cards, tracking systems, and other processes all lined up to make it all happen. If this post gets enough interest, I'll share more of the details and specifics along with the ongoing results.