Why I’m Getting Rid of My Credit Card

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Resources Related To This Episode

Rich Dad Poor Dad Book
Barefoot Investor
Barefoot Investor Bank Accounts Explained
Questions About Barefoot Investor Bank Accounts
2 Properties To Financial Freedom

Transcription:

So like most people in Australia, I have a credit card or me and my wife do, it’s from St George. Mastercard could eliminate $2,000, but we are actually working to completely get rid of our credit card. And then this episode I’m going to talk about why that is and why I think for us it’s going to be best not to have a credit card, so this might help you. You might want to assess whether or not you want credit cards in your life or whether you actually want to step away from credit cards, which is what me and my wife will be doing in the future. Hey, I’m Ryan from on property.com dot EU. I hope people invest in property and achieve financial freedom. And for me, getting rid of the credit card is all about financial freedom and maximizing the cashflow as well as simplifying my life and simplifying my banking.

Now, if you haven’t read it yet, Rich Dad, poor dad is an amazing book and one of my favorite things in that book is how he redefined the word asset and redefine the word liability. This completely changed my life when I read it. I sat down and read basically all of his books when my wife was pregnant with our first kid, so that was about nine years ago and I achieved financial freedom and about seven years or six years after reading his books through my businesses and through applying these principles and so he redefined asset and liability. And so what most of us think when we think of an asset is we think of something that’s worth value. That it has some sort of value that you could sell it. So your house might be an asset. Your car would be listed as one of your assets.

My gamecube controllers that are worth about $50, age would technically be an asset, but Robert Kiyosaki takes it further and says no, and asset is not about whether or not something is worth money or whether or not it holds value, but an asset is about what that item does to your cashflow. And so an asset is something that puts money into your pocket and so delivers you passive income and then also redefines liability as something that takes money out of your pocket. And so this is an ongoing expense. And so that’s why it was so controversial when it came out because he says, your house, the one that you live in is not an asset because living in that house costs you money. Even if you completely paid off the mortgage, you still got counselor rights, you still got insurance, you’ve still got maintenance. So from a cashflow perspective, it’s a liability.

And so you may or may not agree with these terms. It’s fine. Like if you want to call your house and asset, that’s fine. Pick another word for things that generate passive income, but just this idea of focusing on in your life, building assets and working for assets, working to acquire assets and then getting rid of the liabilities in your life. And this is why I’ve come to the conclusion that we’re just going to get rid of a credit card because it is a massive liability for us. I also recently read the barefoot investor. If you haven’t checked out that book, go ahead and check it out. Uh, talk exactly about how I set up my bank accounts as a result of that book in episode five, hundred and 10, so I go to on property.com dot a u four slash 5:10 if you want to learn more about the barefoot investor bank accounts, but basically the mixture of realizing that my credit card is a huge liability as well as this new banking system.

I don’t need a credit card anymore. So let’s talk about the liability aspect of it and how that’s affecting my financial freedom and how it might be affecting your financial freedom. And then we’ll talk about simplifying our banking and why I don’t actually need a credit card. So my credit card, the one that I showed you guys, I’ll just cover the numbers here, but this is a sin George credit card. I think it’s vertigo or something like that. Um, yeah, so it’s barely go on it. This car costs $55 per year to have so $55 a year just to have this card and then the interest rate on this card, 13 point seven, four percent. Now most of the time that we’ve had this card, it has been maxed out. Okay. We have times where we clear it, but generally speaking it’s either max out or it’s about half full.

And so we are paying interest on this currently it’s only like 30 percent of Australians actually pay off their credit cards in full. So most of you will probably have a credit card you don’t pay off in full. So we’ve had this card and had it maxed out for quite some time. And the interest rates 13 point seven, four percent plus we’ve got that annual fee of $55 per year. So this means in interest as well as the annual fee. We’re paying $329. 80 approximately per year to have this card. So this card is costing us $330. That’s $330 that I’m going to have to earn passively somewhere else. If I want to become financial financially free, now the problem with that, so $330 doesn’t sound like a lot of money, but when it comes to investing, it’s actually it’s a lot easier to spend the 330 than it is to make it.

So let’s say I wanted to invest money in something that was returning me five percent. Now remember we’ve got to pay tax as well, so assuming you’re paying 30 percent tax on that interest, then we’re only looking at really getting about three and a half percent after tax. And so in order to make $330, I would actually need about $9,423 in investments in order to make enough to pay for that $2,000 credit card. So I would need nine and a half grand in investments to pay the costs of having a $2,000 credit card. Now obviously if you have that card paid off, you still only paying. You’re still paying the $55 per. So if you’re super smart with it, you just paint that $55 per year. I would still need about $1,600 in investments in order to cover that cost of $55. Now with the, you know, how they had the interest free days, so up to 55 days interest free and so sure some of you are super smart, know exactly how that works and can maximize it.

I’ve got a friend who’s a treasurer and he has excel spreadsheets that he just, he just loves excel. He’s just always tracking finances. That’s his job at like what he loves to do and so he was always one to get those credit card for a year that had the rollover period of interest free for a year and then he would take that money and put it in his offset account. He would know how to maximize the up to 55 days. Interest free. Truthfully, for me are not that good at budgeting, are not that good at managing my finances that after 55 days when to pay, it kind of confuses me if you know how to use it and you can take that money and hold it in your offset account and you know exactly when to pay it, then more power to you, but for me, I really wanted to simplify my banking and this is coming back to what I learned from the barefoot investor about how to set up my bank accounts.

Now if you haven’t checked it out again on property.com, forward slash five, 10 will take you to that episode. Also did another one where I expanded on that, so that’s on property.com dot EU four slash 5:18. I’ll leave the links to those in the description down below if you want to check out how I’m doing my banking, but just this idea that if you save up a Mojo account, that’s what the barefoot investor calls it. Basically, you have an emergency savings fund. What do you need a credit card for? So if you have a spending card and you’re spending within your limits, so me and my wife have this ing cod as you can see it says spending on it. So this is how we use our weekly discretionary spending money. We also have a card that we called the pot, so I’ve got another card here.

And so that’s the part. And so that’s what our expenses come out of, but we’re now living within our means and so we don’t need a credit card anymore in order to make purchases because our purchases are all coming off the pot or they’re coming out of our spending account. And then the reason that we were going to keep a credit card around is just for emergency. So let’s say we have a car accident and we have some repairs that we need to get done on the car that we weren’t expecting or we have. Um, I don’t know. You know, stuff comes up in life and you think, okay, I just want to have that credit card just in case. Well, when you start to save up Mojo, when you start to save up money in this emergency fund, you now have money for emergencies, so we are building up our mojo account and saving up and when it reaches a certain limit, that’s when we’re going to call up and cancel that credit cards.

So at the moment credit card is moving towards being paid off, shall be paid off in the next couple of months and then we’ll be building up our Mojo to get to the point that we wanted to get to and then we’re going to call up and cancel their credit cards completely will be credit card free, which hasn’t happened in a long time. And then we can just shift our focus. Our focus already has shifted actually from paying off credit cards and getting rid of liabilities to building up assets. And so in my business I’ve always been about building up assets, building up passive income, and now we’re doing it in our personal lives as well. And so if you want to become wealthy, then obviously you want that focus on building assets that deliver you passive income. Rather than having those liabilities, I am not against credit cards.

Some people know how to use them really well. Most of us don’t, and let’s be honest, most of us aren’t great at it, so that’s you. You might want to think about this as well. Maybe your life would be better without a credit card. Maybe your finances will be better without a credit card or you might be someone who manages them really well, gets the full benefits out of all the points and all that good sort of stuff. If that’s you, then more power to you. I wish you the absolute best, but I hope today that I can challenge some people that you don’t need a credit card in your life. We don’t need credit cards in our lives. You can live a perfectly normal life without a credit card. There are some issues without having one, like when you go to rent a car or when you stayed at a hotel.

Sometimes if you have a debit card, they want to take a few hundred dollars off to hold because you don’t have a credit card, but if you got that money in Mojo anyway, that doesn’t really matter that much. So there’s issues with not having a credit card in life, but the issues are pretty minor and if you’ve got that Mojo savings then you should be fine with it anyway. So I really hope I challenged some you today that you don’t actually need a credit card in your life and now you can think about do you actually want a credit card in your life? Is it benefiting you or is it actually taking away from your life and making it harder for you to achieve that financial freedom. And so for me and my wife, it was making it harder for us to achieve financial freedom. It’s a liability.

As we said, it was mostly maxed out. So we were paying about $330 per year. In order to have this card, we’re going to get rid of that card and instead have money saved up in Mojo. So we’re going to be making passive income, albeit a small amount because they don’t pay that much in interest just in the Mojo account, but it’s such a big difference from costing $330 per year to have this credit card to then shifting our focus, paying it off, getting rid of it, and now we’re building up savings and we’re also focusing on investments and building up that passive income. I wish you the absolute best. Whatever you decide is up to you, but for me, I’m all about financial freedom and to in order to be financially free, you want to minimize your expenses, so minimize those liabilities and you want to maximize your assets and your passive income. So for me, a credit card just doesn’t fit into that anymore. I’ve been Ryan from on property. Thanks so much for watching. While you’re here. If you’re interested in financial freedom and building up passive income, check out this video that I did with Ben Everingham on two properties to financial freedom. Absolutely loved this video and this concept of investing. I think it’s going to change your life. So check that out and also don’t forget to subscribe to the channel. That’s it for me. And until next time, stay positive.