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Tuesday, September 8, 2009

Managing Debt - Part 2

In previous post of Managing Debt , I talk about some brief overview of good debt and bad debt. This post suddenly come across my mind when my brother feel so "unhappy" cannot use future money to buy his train ticket for the Hari Raya holiday. When the transactions failed to be done with the credit cards, my mom ask him to go to the station and buy direct with cash. Then he frowned and say, "Sigh, cannot use future money."

Debt or some would say future money can hedge the inflation or make the money work for us provided we have the discipline in repaying the debt. One of the example, is the credit card - my brother buying train ticket scenario. He has the money in which he can either use for buying train ticket or just top up that amount of money to buy a stocks, which he is confident will be giving him about 7%-10% gain. Thus without using the credit card, he cannot buy that stocks (which can be good or bad, but then that is another story). But with the credit card, he can at least hedge inflation for about 2 month, at least a month. This is because usually a credit card statement will have statement date whereby all the transaction for a month will be included and there is another date call payment date whereby the transaction for the month due before the date.

If you make any purchase right after the statement date, your transaction will be reflected in the next statement plus the payment date which will be about another 13 days, you will have 43 days of credit. 43 days is about 1.5 months inflation hedged. Imagine having 10 BIG transactions done like that. Your money value definitely not shrink as fast as others would.

Next up on managing debt, we will be talking about using easy payment, another tools which I think we can leverage it to hedge the inflation as well. Hedging inflation is almost the same like surviving in this "inflation" world

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