The Bottom Line
The real truth of the final reckoning
When it comes to money, there is always a bottom line. The ones who really know about this are in "The Profession" - accountants, investment consultants, financial advisers, etc. They understand the intricacies, those confusing details that support and justify whatever comes after. If you have no idea what I'm talking about, you are in good company. Most of us tend to go blank once the experts start explaining why a particular deal or offer is so beneficial, and that's when they pile on more of the same. Eventually we are totally bewildered and either accept the advice without further questions, or beat a hasty retreat vowing to stuff our money back in the mattress and leave it there. These are the reasons we miss out on the best buys, or get sucked into long-term arrangements that keep us in our place - poor and misguided. But if you convert it all to the simple truth, it isn’t so hard to understand.
Even the most complex of arithmetical equations boil down to a single figure, the one which all the others finally lead to; and when that figure is what you are left with once the dust settles, everyone understands the difference between zero and plus. In finance, however, there can be another result - the minus factor - and that is definitely the one we need to avoid. It can be done. You just have to make sure you don't get swayed by the mumbo-jumbo and discover the bottom line. That's the result after the final reckoning, what's in your pocket at the end of the day - extra cash, or a big hole. Let me give you an example.
The other day we received a credit-card statement. Nothing unusual in that, nor in the total amount owing which, on checking, accurately reflected our purchases over the previous month. As we always pay before the due date, interest wasn't a consideration either. There was, however, something different - a few lines of advice. Someone at the bank had used the final figure of our account to extrapolate the consequences of only re-paying the minimum amount, rather than clearing the lot. It read like this:
- "Minimum Repayment Warning: If you make only the minimum payment each month, you will pay more interest and it will take longer to pay off your balance..."
Had we elected to pay only what was necessary, the goods and services we'd bought in that single month wouldn't have been paid off for 13 years and would have cost us over 3 times their original value! Now, bear in mind this was just what we owed for thirty days. Imagine how much more it would have been for unpaid dues accumulated over a year. That's exactly how it is for many people, whether out of choice or necessity, and it's a financial killer. I wonder who would even have a credit card if they were made aware of the true costs in the beginning? We know because our bank has just told us, and good on them for being so up-front. There is, however, another way of reducing costs that they didn't mention, that being the fact that they calculate interest on a daily basis. So, each item you card is incurring interest every single day that amount is owed, and this is on top of any balance carried forward from the previous month. If you are really serious about reducing your credit-card debt, pay as much as you can, as soon as you can - once a week, once a fortnight, or whenever your income allows. Leave paying an outstanding balance until the last minute and you are simply adding to the bank's profits instead of reducing your own liabilities.
Plastic cards, of course, aren't the only form of credit, and when the cost of an item under consideration stretches into hundreds, sometimes thousands of dollars, loan companies and banks may be the only salvation. Unfortunately, they won't help you out for nothing and they can end up owning you - body and soul! Here's where the bottom line can hurt big time if it comes as a late surprise. When you are seeking advice on this kind of loan, insist on 'plain' for everything - talking, figures and facts.
You need to know:
- How is the interest calculated - daily, weekly, monthly?
- How much will the re-payments be each month?
- How much will be saved by making interim payments?
- What is the total cost if the loan continues for the life of the agreed term?
- What penalties will be incurred if payments are late?
- What, if any, is the penalty fee for paying out the loan early?
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