Today's recap of savings is brought to you by the letter B, for banking. And brief, because we've got a busy day ahead of us. Yes, we have been watching a lot of Sesame Street.
5. Having a charge card rather than a credit card. This one was Hubby's idea. I myself did not know the difference between the two until this year. A credit card is what most people have, and you can get into real trouble if you rack up purchases and don't pay them off. The usual interest rate is around 20%, and that's the percentage of your balance that will be added every month. This would be how banks make money off you, especially if you only make the minimum payment each month. By doing that, it takes years to pay off. However, having a credit card is a good tool for building your credit rating, so the key is never to carry a balance. Most credit cards have a grace period for purchases, so you won't pay interest if you pay off your account in full each month. If you're prone to accumulating debt (or assuming that the amount of credit you have is your money, as opposed to the bank's money), lower your credit limit to something affordable.
A charge card, on the other hand, doesn't allow you to carry a balance. You have to pay off your purchases in full every month, or your card gets cancelled. Hubby now has an Amex card, and the only hitch is that it's not accepted everywhere. However, if he gets stuck, we have my Master Card, on which I don't carry a balance (except when my bank changed their website around, and I wasn't getting notifications on when my payment was due, and couldn't log in to see my balance.)
4. Opening a TFSA. I opened a tax-free savings account with my bank, back in March when I had employment insurance coming in every two weeks, just sitting in my chequing account not earning interest. There are all kinds of regulations around how much you can deposit and withdraw, so I decided to put all the money I wanted to save in there, and keep enough in chequing for groceries and such. Initially I had 4000$ in there, and I transferred in another 2000$ a couple of months later. In under a year, I've earned 64.79$ in interest, and as the name of the account suggests, it's tax-free. The interest in compounded every month, like it would be on a credit card, only this time it's in my favour. So every month, I earn a little more interest.
I'd like to keep that money in there unless an emergency comes up. Speaking of which, did you know that most Canadians don't have an emergency fund of at least 500$? No wonder we get into debt so easily! We didn't have one either until this year, and ours isn't even as much as it should be. The ideal emergency fund is six months' worth of your household's after-tax salary. That would take quite awhile for most people to build, and we're no exception. Between saving for baby D's post-secondary education and our retirement, we don't have a lot of money to put away.
That's it for today! The final three ways we saved are coming soon, in addition to a couple of things that didn't work out so well. Never let it be said that I claimed to be right ALL of the time!
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