Markets Getting More Value
You must understand that a market exists for your consumer habits and information. The average person won’t get much value from their information, but you can get an immense amount of tangible value from your consumer habits. You can get more out of what you put into making your ends meet. Leverage is what we’re talking about. In economics, you leverage when you borrow money. After a discussion of credit and credit worthiness, it makes sense to move to an understanding of the other part of the leverage definition. In a household budget, the borrowed money is intended to increase your productivity, financial transactions, and income. In economics, the more money you owe, the more you are said to be leveraging. In a household budget sense, the focus turns to your benefit as the focus of your leverage. The more you can use the money you borrow to increase production, turnover dollars, and make ends meet, the better you utilize leverage.
Leveraging Your Household Budget
I offer two examples of leverage in household budgeting. The first we discussed in the credit and paying less discussion. When you utilize credit and pay off the balance or finance at 0% interest, you effectively gain the means of production at no reduced cost (plus finance fees) and sooner than you would have had access to it if you had to rely on cash payment. The leverage is doing something with that reduction in cost and time benefits that creates more resources. You want at least enough to cover the finance expenses. You hope for additional and extraordinary gains. The hope is that you create lasting capability or at least a temporary boost in your earning potential.
The second example builds on the first. Be intentional about the credit cards and financing agreements that you accept. Seek those that provide you with additional benefits for usage.
You can pay with cash. That money is used and expensed. It is exchanged in return for the goods or services you paid for. When you make purchases with credit (when you leverage), the payment may give you points, cash back, or other perks that benefit your financial bottom line. In effect, you are turning over the same dollar multiple times. This is the next level of credit card usage. Once you can qualify for better credit cards, you can opt for cards that reward you for the purchases you make daily. The cards can be used for groceries, online payments, utilities, and more. Each time you use the card, you gain rewards. Pay the card off each month with the cash that you would have otherwise used to make the payments.
LOL Surprise! House
For example, spend your budgeted amounts when you shop for groceries and vehicle gas every month. Use of the credit card instead of cash is accruing points. Let us base our calculations on an actual credit card (Chase Freedom Unlimited) that provides you with the following:
- 1.5% Cash Back
- $150 after you spend $500 in the first 3 months
We can estimate that you spend $60 per week for gas and $150 every two weeks for groceries. After 3 months, you will have spent $720 on gas and $900 on groceries, exceeding the $500 threshold for the rewards. Over that first 3 months, you will have earned $150 as a bonus plus $24 in cash back. That’s $174 just for making the purchases that you would normally make.
Let us further propose that your child’s birthday is coming up. You were planning to purchase the LOL Dream House. You find it online at Walmart for $189. But, purchasing online and signed up with Ebates, you get 5% cash back on purchases from Walmart. You buy the dream house and your groceries for the month scheduling pick-up service with the retailer. You paid a total of $489 and receive $25 back from Ebates. In effect, you get a free dream house for your child’s birthday. Brilliant. Financially Literate! What if you also paid your utilities, cable, and cell phone bill with the card? That’s another $200+$75+$70 you are getting cash back on. Another $5 in your pocket each month for bills that you are paying regardless. That’s $60 per year. Can I foresee more LOL accessories for Christmas?