Wednesday, October 30, 2013
How Credit Cards Can Be Used for Financial Independence
Having financial independence means not having to worry about the ability to pay bills or having the means to pay for new experiences. One of the first steps to attaining financial independence is realizing that the luxury of a large income does not always mean that you will be financially independent. Indeed, you could take home a huge pay check every month but if your spending exceeds your pay check, you’re not financially independent. In fact, you’re already in debt if that’s the case. A credit card will not do you any good in this situation then, and you need to find a way to cut your expenses or earn more income. You just learned the lesson of the maxim “live within your means” the hard way.
But if you earn enough money from your job and your expenses are well below your income, then you might want to consider diversifying your source of income. Yes, your job is one source of income but that’s just one of them, and there’s always the risk of losing that job or being disabled and that doesn’t make you financially independent.
If you have extra funds then you could consider investing that in the stock market or in starting your own business. This is one situation where having a credit card could come in handy. Having a credit card is one of your options for funding your own business. Many suppliers accept credit cards so you could use your card to pay the supplies that your new business needs. It can also help you take care of some of the costs related to starting a business like getting the permits for the business and some of the equipment that you’ll need for operating your venture.
We’ve already mentioned that being wealthy means having more income than expenses. How could a credit card cut expenses? Well, if you plan to get a house in the future or another big ticket item like a car for example, you could save a lot if you have a good credit history. This shows your lender that you have a good record of paying your debts so that they could give you a lower interest rate on your loan. Having a credit card helps you build a credit history so your task is to diligently pay for your credit card bills every month in order to build a good credit history. You also get to save on penalties if you pay your credit card bills on time so that’s another expense that you don’t have to worry about.
There are other ways to achieve financial independence but the key is to having more income than expenses. A credit card can be used to increase income (by helping fund your startup) or for avoiding expenses (like higher loan interests by helping you build a credit history that will unlock lower interest rates for big ticket items like home loans and car loans).
About the author:
This is a guest blog contribution by Michael Vincent in behalf of Compare Hero, Malaysia’s leading credit card comparison website. Compare a broad range of financial products – from credit cards to broadband plans for free, right in your browser.