Win-Win Benefit for All

Great Offer?

At first, it seems unreal. Imagine if you sell a TV and only receive payment 3.5 years later, do you want to do that business ? Maybe no. The same answer I would expect from companies, such “Harvey Norman” who regularly conduct this special offer.

So, if they also don’t want to be paid 3.5 year later, how does it work? The answer lies on the “joint venture” between the companies who promote the offer and some financial/credit provider company:

• The company who sell the goods, will be paid immediately by financial/credit provider company, as if it is a credit card purchase. (There will be usual commission for each sales, just like normal credit card purchase)
• The customer who purchase the goods need to open a new credit card account or personal loan account on the spot or online with the financial/credit provider company. This is subject to normal credit/lending criteria including credit check, income information, debt information, etc. Just exactly the same if you want to open/have a new credit card. (That’s why the term is “for approved customer only” and there is minimum amount of the purchase to make sure it’s worth doing).
• The “joint venture” aspect is that the company who sell the goods “introduces” their customer to the financial/credit provider company. The company who sell the good will have more sales, the financial/credit provider company will have new customer. Of course additionally the financial/credit provider will pay some “kickback” or commission as if the company who sell the good were their broker.
• The customer is also happy as they will have more buying power at the earliest time (now!)

For the credit provider, having somebody only pay 4 years later is what they do for business (Remember, mortgages span for 30 years) – so really no big deal for them to provide such credit facility.

The Hidden Temptation For Customer. Beware !

This is not really a trap or “gotcha” from this scheme, but more on “temptation” for the customer. How ?

1. The fact that you have additional buying power the same as you have additional money in your pocket will give you so much temptation not to “upgrade”. You know: want 40 inches plasma TV-  end up buying 52 inches one, want laptop with 120GB Harddisk/2 MB memory – end up with 160GB Harddisk/4MB memory, no plan to buy dishwasher – end up with not only dishwasher but also a small fridge.
   See, the problem is, this is really nobody fault except the customer. Only self-discipline will guard you from this, nothing else. The seller is on the business to sell more to you, that’s given. So, cannot really blame anyone except yourself if you buy more than planned.
2. When you open the new credit card/revolving credit, the company will give you more credit than the amount that you buy. For example: you buy $1000 computer using this scheme, open new credit card account, and the financial/credit card company may give you $5,000 credit. Yes, they block that $1000 no interest,  but you have $4000 credit ready to be used – and of course with that hefty interest at the order of 15%-20%. Yes, the company will explain to you that additional purchase will attract interest (if they did not explain to you then they miss their obligation) but along the way when the temptation come, there will be so much harder to resist that you have immediate $4,000 to spend.
3. Beware of  the “additional offer while you are on it“. For example: the computer you buy has 1 year warranty, how about buying 5 year extended warranty instead (or sometime they ask you as a requirement). Or since you buy this plasma TV, why don’t you add this HD set top box for additional $25?
   This kind of offer will not be limited while you are in store only, but it could be happening during the life of your “no interest” period.
4. At the end of interest free period,  there will be a temptation to keep it under credit (not paying it off) and then you start paying the high interest rate.

And final caution is beware the administrative fee / annual fee that will be imposed to the credit that they provide to you.

My Recommendation.

Remember, never ever buying consumer good with debt. But if you have the money already, and you qualify for this offer and can tolerate some hassles then, why not?! But remember to do the following:

• Put your money on high interest saving account (such online saving account or term deposit – don’t put it on your mortgage offset account as it will not “earn” that much). As example: $1500 purchase where the money can be put into 8% term deposit for 3 years will earn you almost $400. Not bad.
• Do not use the credit card or credit facility at all as you will possibly paying hefty interest from it.
• As soon as the “interest free” period ends, pay off the amount with the money that you have already and close the credit card/credit facility that you use.

Thus, as you can see… you really need self discipline more than anything to get the most of this mouth-watering offer!

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1. How Much You Spend For Xmas?

First thing first, you need to know how much you spend just for Christmas related expense: gifts, special donation, decoration, taxi for party, extra tip, etc. No need to be exact number, just roughly.. $500? $1000? or massive $5000 or more? I guess most of us, as long as we don’t leave the city will spend around $500 – $1000 for all those extra festivity expense.

Small Piggy Bank for Christmas

2. Little Help From Bank

Thanks to a little bit competition among banks, let us now open a new saving account – the one without monthly account keeping fee. No need ATM access, no need internet banking and not even need interest, if that help – as long as we can transfer (electronically via internet for convenience) from our existing account. It doesn’t have to be your normal bank, any bank or credit union that offer no-fee account. We will open a dedicated “XMAS account“.

The idea is old: piggy bank. But we make it more modern and fancy: a special bank account just for all Christmas related expenses. And since it does not have account keeping fee, it will not cost you a cent.

3. Contribute Throughout The Year.

If you have your salary weekly, how hard to contribute only $25 each time? Or make it $50 fortnightly? With this amount, suddenly you have extra $1300 cash for Christmas every year. Of course, you can add more if you can, but do not make it too high as it will come a burden and then make you stop. Even as little as $20 fortnightly will give you a handy cash just over $500 for Christmas shopping.

The trick is to make it automatic. Set up a periodical transfer with your internet banking  exactly the day you usually receive your salary. For example if you received your salary on your account every Wednesday fortnightly, set to auto pay every Wednesday fortnightly the amount that you want. Why exactly on the day? This is to do an illusion to the brain to not realizing that the amount has been deducted from your salary. After a while you will get used to it and maybe forget about it, only to find that extra $1000 on Christmas. Isn’t that nice ? (Note: just make sure your account does not go into negative if the transfer from your employer got a day delay or so – leave some buffer)

Again, don’t set the amount too high so that your budget will severely affected. This is just a little squeeze, if it is too much, you will alter it.

No Christmas Debt Next Year

So, yes, this year you may still have those xmas debts, but this year will be the last. Next year, you can be sure that there will be no debt anymore as your little piggy bank has started accumulating little by little – automatically.

Have a good new year, then !

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A little trick at Money Changer they don’t tell you about…

Most of the money changer / foreign currency shop will display “No commission” and people falsely feel that they just change more than enough money for the trip and then the unused money can be changed back later. But this way carries a hidden cost. It’s from what’s called “spread”.

Currency Exchange

For example: I am in Sydney Airport and about to travel to Hawaii and I want to change my Aussie Dollar to US Dollar, this means I want to buy $US and the shop will sell the US$ to you. In the shop you will see something like this: US$ Buy1.160 Sell 1.237.  This means they will sell US$ 1  for A$1.215, but will only buy US$ 1 for A$1.160. So my A$10000 then become $10000 / 1.237 = US$8084.  Now, after the trip you did not actually use all of it, you just use half , so you still have $US4042 in your pocket and you want to change it back to $A. So US$4042 will bought at 1,160 rate and become 4042 x 1.160 = A$4,688. So, your half of your $10,000 is no longer A$5000. It  is now only $4688, thanks to “spread”. (The difference of $312 is the profit for that shop – that’s how they make money)

So, changing more money than you need is not a good idea as you will have to pay the spread to the money changer. (Of course, if during that holiday, say the $A become significantly weaker, then probably you pay very little spread, but on the other hand, if the $A become significantly stronger then you pay even more to change back to where you were)

Furthermore, carrying cash is probably very risky as it can get stolen quite easily.

Credit Card Cost

Let us see about credit card. Yes, even with credit card, you will need to pay the exchange rate – no one will escape from this if they want to change currency. But who will likely able to give you the best currency rate,  a local money changer with tens of thousands proceed a day or Master Card/Visa/American Express with billions of dollar a day ? I would say the chance are the one with big proceed will give better deal.  Of course, not always, you will probably find some local shop that is “on sale” and give you better deal, but it is unlikely as these local shop also get their supply of money from their banks who deals with these credit card companies on wholesale pricing.

On other note, there are “transaction cost” that usually being charged for international transaction. And 2 middle men charge this transaction fee: the credit card company and your bank/card issuer. But the total amount of fee will likely no more than 2-3% (although depend on the country and currency. But if they charge extra for certain currency/country, the chance are the local shop will charge even more expensive rate). Check your credit card fine print for more detail.

Recommendation For Overseas Travel – Money-wise

So, knowing both aspect above, here is the list of recommendation for your consideration for your next overseas trip

Prepaid the bulk cost of your trip: airfare, hotel, guide tour, car rental, etc before you depart. And yes, pay it with credit card as you will accumulate points (but don’t pay surcharge for this as it will defeat the purpose)

Bring only minimum cash of the foreign currency only to cover petty cash: pay tips, buy ice cream, small purchase, etc. Just exchange whatever amount that you think you would use it up. Don’t plan to have the money exchanged back.

Pay everything else with your credit card: souvenier, taxi, restaurant bill, theme park ticket, etc… Everything else. Just pay with your credit card.

Have online access to pay your credit card from internet. You need to be able to transfer some money from your saving account to your credit card account as your credit card limit is not supposed to be that high. Do this maybe once a week or so at your convenient

How about emergency fund ? If you can have debit card: “Debit Master Card” or “Debit Visa” this will be your best alternative as the money will not be touched until you withdraw them in emergency and the cost of withdrawal is very very small.
Other alternative is to prepare traveler’s cheque for your trip. They have better spread in case you want to convert back to original currency and you can split it for your convenience. Say you want to carry $10,000 emergency fund, then you can purchase 2 x $5000 traveler’s cheque. This way, if you only need to access only some of that emergency money , you don’t need to cash out all $10,000.
Otherwise, just spare some credit limit on your credit card for this emergency purposes. But withdrawing cash from credit card is quite expensive, not only it attract the interest rate straight away (regardless of free interest day period) it also attract cash advance fee at the time of withdrawal.

Final words

The actual cost using credit card for overseas travel is just that “transaction cost” around 2-3% that will be charge for each transaction. But avoiding this cost by carrying cash is becoming more expensive at the end. Not only the risk of cash being stolen but financially, you will pay “spread” cost to put the cash back into the original currency. This is a hidden cost that not many people realize it.  Just bring and exchange cash for petty expense and don’t expect to change it back to the original currency.

So, as final word: just use your credit card on your next trip: domestic or international !

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How to Get Rich Explained: 4 Simple Plans

Without further due, these are the 4 simple plans that will make you rich but only if you do it all:

1. Earn more income. Make sure your income beat the inflation
2. Spend less money than what you earn. As less as conveniently possible.
3. Invest the difference between (1) and (2)
4. Protect all activity above: (1) and (2) and (3) with insurance.

Financially Wealthy

That’s it. That’s the very key secret of getting financially rich. The only caveat here is : you need to do all fours without exception. If you do all four, then the different between one people and other people is the speed to become rich. Some will be very quick and enjoy the the rest of their life as rich man. But for some, the speed toward richness is just too slow that they will sadly be gone first before it got there.

Plan 1:  Earn more income. Make sure your increase of income beat the inflation

The goal in this first plan is to earn as much money as possible and increase your income every single year above the inflation rate. For example: if the inflation rate is 5% then you need to increase your income at least by 6% or more.

But it does not necessarily mean asking a pay rise from the company that you are working for. Fine if you can get a pay rise, but your income could increase by doing freelancing, some part time job at late evening or week end, It does not mean you increase the price of your product eithr, but perhaps get some more customer will do.

Plan 2:  Spend less money than what you earn. As less as conveniently possible.

This is where your budgeting strategy come into the play. With budgeting, you need to make sure your income is larger than your spending. Delay instant gratification and just plan ahead of the actual need. Not only you become more in control on your spending behavior but this will maximize your saving. The counter balance is that you should still live comfortably. For example: budgeting only eating every second day is not only not comfortable, but it also absurd and not healhty. Don’t do that. But reducing eating out at the restaurant from weekly to biweekly is something that everybody can do.

Plan 3: Invest the difference between (1) and (2)

The goal here is to make return of investment as high as possible, which includes following aspect:

• The higher the saving (difference between income and spending), the more capital you have. The more capital the higher the return value.
• Choosing the right investment strategy is crucial. Putting money in saving account in the bank is the standard here. This method of investment is too slow and will not get you to richness level that you want. You need to be able to choose other investment strategy that give much better return.
• Accelerate investment with debt

Plan 4: Protect all activity above: (1) and (2) and (3) with insurance.

When I mention “insurance” it does not necessarily only insurance product that you can buy from insurance company, but in wider understanding. The goal on this plan is to protect whatever we already have as much possible against any unexpected occurrence a.k.a “risk”. This plan will includes:

• Protect your income with “income protection” insurance
• Protect your spending by purchasing insurance that limit your liability: car insurance, indemnity insurance, business insurance, health insurance, etc
• Protect your investment with some kind of hedging or capital loss protection such as put option protection or some other advance scheme. With this, even there is another global financial crisis that bring down practically everything down to its knee , the value of your investment is protected. Especially if you are using debt as leverage, managing risk is a must.
• Protect the whole activity by having “emergency fund” (before even do investing) that guarantee you can do everything as per normal for at least 6 months without any income at all.

Without all the protection above, you will be vulnerable of any mishap and unexpected circumstances. Remember nobody will really know what happen next. Just prepare enough for the worst, just in case.

Complicated ?

I hope the essences of those 4 plans above is not too complicated for you. Basically all your activity in pursue of wealth can be categorized into one of those 4 plans.

Now you know the big picture how to get rich, the next step will either:

1. to implement the 4 simple plans above into real tactical strategy how to do it the fastest –or–
2. to make excuses that the plans will not work

Remember the quote from Henry Ford: “Whether you think you can or can’t, either way you are right“ This is just the way things work. So, your call !

One important note before I end this article: the journey to wealth is not easy and require a lot of sacrifices, but it does not mean that you have to suffer. On the contrary you still need to make it enjoyable on the way, for example: make sure still have quality family time every day and weekend despite extra part time work, still budget for holidaying together every now and then, although not as often but you should still enjoy eating out with family and friends, etc.

Of course if you lucky enough to get that 50 million lottery jackpot, don’t worry about above plans. The question is how do you control it that you will get it someday ? Maybe do something more within your control like these 4 simple plan.

Hope this inspires you ! Take Care!

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This is the latest brochure I read: “Buy Fujitsu Reverse Cycle Inverter Split System for $1596 (after $200 “free money” via redemption from supplier). Meaning: you need to pay $1796 first, file a claim (as simple as filling an online form), then the supplier will send you $200 back to you…. Easy ? But why not just pay $1596 in the first place ?

Another example, Hewlett-Packard (HP) also use cash back marketing strategy a while back.  I remember getting $75 about 2 months after I purchase my HP C6180 printer as cash rebate. So, big or small company already embraced this strategy.

Cheap & Easy Promotion and Marketing Strategy

Of course this cash back scheme is just another marketing or promotion strategy. The purpose is clear: to make more sales (hence profit) – this is the bottom line – only with 2 distinct significant advantage for everybody:

1. The marketing cost (cash rebate) is self funded (the company don’t need extra money to fund the promotion) as the cost is done after the sales is transacted – making it very cheap cost (no loan or even opportunity cost wasted). Also the cost will be fixed, there will be no over budget: if 1231 unit is sold then the cost is 1231 x $200 (no more no less). All other marketing strategy will involved doing much difficult forecasting of how much more sales will be induced by that promotion effort. So, this cash back strategy not only cheap but also easy. Furthermore, the pay out of the cash back is further months back, hence the company can use the proceed of the sales for something else first.
2. The promotion money is invested in the customer itself (not advertising  media company) , hence in the long term will result in better brand image and brand loyalty for each customer.

Reward The Customer not The Middleman

Behind The Cash

Why not just discount the product ? The answer is: technically the manufacturing company doesn’t know the actual selling price. The manufacturing only can set and know what so called RRP (Recommended Retail Price) , for example a laptop computer has RRP of $1,500. But usually almost nobody will sell at RRP, the retailer will sell for cheaper price say $1,300 and quote “saving” of $200. (sounds familiar ?).

So, if a supplier/manufacturing company wants to give $150 as promotional strategy describe above, they cannot really mention the selling price as it will be different from retailer to retailer. Furthermore, it’s getting more complicated as the wholesale price (the price that retailer pay) also varies from retailer to retailer based on their buying volume, credit rating, reputation, etc. So, even mentioning 10% discount will not give the uniform benefit for every customer.

Therefore, a “cash back offer” or “cash back rebate” is the smart way to reward the customer but not the middleman (the retailer). It makes sure that the end customer is the one getting the benefit and the retailer still need to compete each other to form healthy market with their price. The manufacturing company just need to launch nation wide campaign to mention about the cash back offer.

Another reason to NOT discounting actual price is related to the image of the product. In the competitive market, say printer market. A $400 printer will be regarded as more advanced and “better” than $325 printer. Because it’s so highly competitive, if  a $400 is sold for $325, customer might wonder is there something “wrong” that they don’t know (obsolete product, known bug, etc)…. Hence, still selling it for $400 (and give $74 cash back) is much better strategy than give a discount and selling it outright for $325. It’s all about product image and branding.

What for Us, The Customer?

I would say generally, if you find a cash back offer, it will offer us as customer a genuine saving. It’s not merely a discounted price from already infaled price (again, usually). So, if you found a product that you need and that product offer you a cash back. Go for it ! The benefit is designed (also) for our maximum benefit (not the retailer).

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