What's a personal finance tip or hack that should be common knowledge but isn't?

[mapes21]

@wingdizzle Keeping track of important ids is a common sense.

 

[nina723]

@rezene Something I found on r/investing

Invest in income, job, skills, etc first and foremost. Investing beyond ‘put x in index fund and leave it’ can be a pipe dream of easy riches, maybe a waste of time you could better spend figuring out how to raise your salary or get a better job. Seriously, some of y’all need to do DD on yourself. What is YOUR business case on how you will grow, who are your competitors, how will you bring in more money year over year? Are you easy to replace at work? Be honest. If you have problems, how do you strategically overcome them? Forge new relationships? Try new things? Start new ventures? Put out more job apps? Get a degree? Get a new career? Be creative. Be strategic. Don’t settle. Be your best.

Because once you get decent enough salary, you get comfortably above cost of living, it’s exponentially easier to invest. And by then you don’t need any magic tricks. Dump in index fund and wait if you like. Invest in real estate if you like. Just don’t blow it on dumb options trades because when you make decent money you don’t need to be desperate anymore. The foundation is the most important thing. Yeah, you can get lucky with the market. But luck isn’t a strategy. Setting a good foundation and business case for your life is.

 

[patriotraider]

@rezene - ULIPs aren't a prudent thing. Besides that, their investment component does not even fall under SEBI's governance. They still sell because people aren't comfortable having to pay premium for covering a risk, without realizing they actually end up paying a lot more of it as things get quite obfuscated under a ULIP!

- Regular funds is a bygone concept that still lurks around. If you think you are not comfortable with choice of funds, see a CFA. (And you'll actually get better with it anyway.) That's lot more economical than regular funds' expenses. People don't realize that the expenses are of compounding nature. Being obsessed with %age difference is a mistake. The absolute amount can become quite large over a long period of time.

- Same applies to POP-SP model of NPS. Use eNPS. Get free loaders who siphon your funds out for doing virtually nothing, out of the way.

- Credit card intermediaries earn handsome amount of money. In the digital era there is less need of intermediary model. Credit cards lurk around because of lack of separation between intermediary charges and actual charges - unlike what was done in MFs by a revolutionary decision in 2013 to introduce direct funds.

- Don't let rewards and cashbacks interfere with your buying decisions. Grab rewards if available by chance for a purchase you were anyway going to make. Look for quality, value for money ahead of rewards.

- Credit cards may best be used to earn some interest by paying later and not to pay interest to the banks i.e. never use EMI options, never miss due dates, always repay full, avoid cash withdrawals etc. unless it's a real real emergency.

-

 

[hammert]

@patriotraider Hi. Can you elaborate more on the Credit Card intermediary model mentioned in your fourth point? I wasn't quite sure what you meant here.

 

[patriotraider]

@hammert If I am a merchant and you are my customer, when you pay me my bill, I pay a good amount of around 2% to the credit card company - for just standing between you and me. If you pay by say UPI that money is saved - either you or me will get it, not a redundant 3rd person between us. Eventually, competition would force me to pass on that benefit to you.

The effect of this phenomenon of an undue intermediary can be seen in mutual funds already. The same should be done to payments.

And those who want value adding services, such as if you think XYXYX Securities does a mammoth job for you by advising great funds that you'd not have found otherwise and you feel so indebted to them that you want to pay a handsome share of your earnings to them - great, go for regular funds, that's your choice. I don't see value with it, so I go direct, it's my choice.

By same logic, those who want credit, reward points, freebies and what not, should pay to the credit card co directly and enjoy whatever they think is worth that much of money. The direct business between a buyer and merchant should not have any effect of the intermediary cost.

 

[hammert]

@patriotraider Thanks for your response. Got what you meant here by intermediary.

I think part of the whole narrative behind these intermediary fees (Visa/Mastercard) is that if there was no credit card, perhaps the customer would not have bought anything. True for large purchases, and sometimes for people like me who don't like to carry cash. I would prefer a store accepting cards any day over one which doesn't as a result. The store that doesn't accept cards loses as a result, so the intermediary fee is kind of like a 'lead generator', if I can call it that, and hence the fee.

I take your point on Mutual Funds of course. Even I opt for the direct route. Since I do my own homework, there is no reason why I should go the regular route. For people who don't or feel intimated by the process/investments as a whole, for them the regular route (through distributors/advisors) does make sense because otherwise, they would most likely not invest at all.

 

[filavenon]

@hammert Hey.. sorry if I misunderstood what is being discussed here. But I’ve one thing to add on your intermediary ( visa/MasterCard) point.
American Express doesn’t have any payment network like others. They issue the card, PoS machine etc and they own the data.
That’s why they’ve very different model as they focus more on spend. Amex main revenue comes from transaction fee. For HDFC etc, they earn more from interest charges as visa/MasterCard takes majority of transaction fee.

You’ll hardly see amex card giving offer like 0% emi etc because they want you to swipe/use your card.

Coming back to the original comparison to direct mutual fund, Amex, discover etc are already doing that. But they’re more expensive than the intermediary driven model like Visa, MasterCard etc.

 

[patriotraider]

@hammert That reasoning about credit cards applies to pre-digital-payment era. You also compared credit card with cash, when I was comparing it with UPI! So with convenience no more being a differentiator it boils down to goodies. And my argument is if you want goodies you pay for them, not all your fellow buyers, just because the merchant will give uniform price for credit card users and non credit card users alike.

I am not saying keep only direct funds. If some people still buy regular, it's their problem and their choice. I am happy as long as I can buy direct. Similarly I am not saying close down credit cards. I am saying just like direct vs regular, let the credit card users pay for what services they avail. If that is not made explicit, all buyers are subsidizing the costs of credit card usage, they use it or not, because the price is same for all (just like it was for MFs in pre-direct era).

 

[hammert]

@patriotraider There is an interesting movement (if I can call it that) happening in the US. More smaller stores are asking for a credit card surcharge fee if you pay with that (or encourage debit card/cash payments through discounts). COVID accelerated this to an extent since many customers switched to plastic than cash, leading to higher costs for such stores. It would be interesting to see whether this would lead to a change in fees.

And I think most credit card cashback/points on average is about 1.5-2% of the outstanding dues at best. Many of the higher cashback categories (not seen any beyond 5%) tend to be co-branded ones. Or the so called 'obscene' ones like 30%-50% that Zomato/Swiggy may do or the 10% seen by Amazon (but they cap the discount). The costs are shared by the bank and the merchant, and the sole purpose of these is to encourage the customer to spend. A customer who is on the fence, can be influenced by such 'offers'.

Keeping the higher discounts offers aside, if a customer has to pay the 1.5-2% difference, then the only benefit of the card is the grace period (interest income on that grace period is barely 0.2-0.3% I presume) and actual credit (for which a customer ends up paying interest). Most cards do have an annual fee associated with them anyway. If they are expected to pay a surcharge each time to use the card, then many would end up not using it. I feel the credit card industry will fight this, and so either these goodies will continue or the costs for the merchant could be partially subsidized by the credit card issuers. I doubt these will vanish anytime soon however.

 

[patriotraider]

@hammert Most ironical thing about the credit card business model is, it thrives on money of people who do not use it! (I have elaborated in another answer.) Make it only-one-who-benefits-pays and it will possibly collapse. (Note that there is a major share of free-for-life credit cards in India.)

Note that it was too attractive to collapse in pre-digital era. Now it's managing to survive due to inertia of critical mass it has acquired.

But coming to whether it can change: Imagine putting ourselves back in the era of regular-only funds and discussing whether intermediary charges could be made explicit. We'd probably call it impracticable and brush it off. But someone showed the spine to change it and it happened...

 

[boniface]

@patriotraider So should I never get a credit card?