Personal Finances 101 Textbook: None. Course will be based on online essays and materials. Instructor: Mba Mbulu

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Class #4

Steps Toward Personal Financial Triumph

In this class, we are going to learn how to (1) Understand the difference between consuming, spending and investing and (2) Establish an emergency fund. Each of these can play a role in helping you keep the hands of big businesses out of your pockets. I have also included another example of how credit card companies will rip you off if you are not alert to their business practices.

Review is a constant in this course. Always check your notes from earlier classes. It will enable you to blend in everything more easily.

Spending, Consuming and Investing

Simply put, to spend is to exchange money for a product or service, to consume is to make use of a product or service and to invest is to become the owner of (gain control over) a product or service. Since we are primarily concerned about keeping the wolf away, so to speak, I am going to apply these activities to the financial conditions that Black People are all too familiar with.

As a money manager, you should be aware of two things: (1) It is not necessary to spend money in order to get a decent product or service; and (2) when you do spend money, you are the only guarantee that you will get a worthwhile product or service in return. In order to not end up on the short end in either of the cases, you should (1) avoid spending money anytime you can do so (provided that it's not too costly in other ways) and (2) make sure the product or service you pay for is worth what you spend to get it. Whenever you avoid an unnecessary expenditure, you are investing in your budget. And, whenever you make sure you get your money's worth, you are investing in your budget.

To invest is to become the owner of (gain control over) a product or service. Avoiding expenditures and getting your money's worth are excellent investments, and they are part of a larger principle that goes like this: the degree to which you control your spending and avoid false needs is the degree to which you own a product or service (or the product or service owns you).

The most critical investments are within the means of most Black individuals. All you need to do is invest every time you spend and invest every time you consume. Those investments will help keep the wolf at bay.

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Establishing an Emergency Fund

Living under the financial restraints We live under, it is difficult to realistically speak of saving for a rainy day. But, whenever possible, saving is another investment in the financial well-being of your budget. You should strive toward setting aside a minimum of 10% of your income. As expensive as emergencies are nowadays, your emergency fund goal should be no less that $10,000.

Most Blacks will have trouble with both parts of this formula. Number one, We can't afford to set aside 10% of what is coming in and, number two, We can't have $10,000 or anything approaching that amount sitting around waiting for an emergency. The answer to the first part is simple: contribute what you can to the emergency fund, even if it's 1% or less. That way, the fund can grow a little bit (any growth is better than no growth) while you look for opportunities to make it grow faster. Secondly, the emergency fund will not be waiting for an emergency, it will be earning interest and reducing your credit debt. When an emergency pops up, any amount you have in your emergency fund will be worth its own value plus fees and interest you would pay if you had had to borrow money instead.

In order to make an emergency fund useful, you have to be stingy about making a withdrawal from it. Once you have accumulated a few hundred dollars, buy easily cashable CDs or bonds (or something of the like) and keep them in a safe place. That way, the temptation will be less likely to overcome you. And, when you finally make a withdrawal from the emergency fund, make sure it is a real emergency. You would be defeating the purpose if you used the fund to satisfy a non-critical need. You might have to seem cruel to others at times, but everyone and your budget will benefit in the long run.

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MONTGOMERY WARD [Top]

Many years ago I received an offer to purchase health insurance from Montgomery Ward. I was told that, once they had my approval, I wouldn't have to do anything. The non-interest bearing charge would be automatically added to my account each month and would appear on my monthly statement. I gave them my approval.

Because of the way credit card companies function, I suspected they were lying about not adding interest to the health insurance charges. After about three months, I decided to find out for certain. I paid off the balance of my account and waited for my next statement. On that statement, the monthly insurance charge made up the total of the balance due.

Since I did not have to worry about a late payment fee, I waited until I had received the following month's statement before paying Wards. On that statement were charges for the health insurance plus interest. I called Wards and informed them of their mistake. They agreed that interest should not have been charged, credited my account for the overcharge and assured me that the mistake would not be made again. I promptly sent them the entire amount that I owed and waited for my next statement. On that statement, the monthly insurance charge made up the total of the balance due.

Again, I waited until I had received the following month's statement before paying Wards. On that statement, a second time, were charges for the health insurance plus interest. I called Wards and informed them of their mistake. They agreed that interest should not have been charged, credited my account for the overcharge and assured me that the mistake would not be made again. I promptly sent them the entire amount that I owed and waited for my next statement. On that statement, the monthly insurance charge made up the total of the balance due.

A third time, I waited until I had received the following month's statement before paying Wards. On that statement, a third time, were charges for the health insurance plus interest. I called Wards and informed them of their mistake. They agreed that interest should not have been charged, credited my account for the overcharge and assured me that the mistake would not be made again. I promptly sent them the entire amount that I owed, canceled the insurance and have rarely used the card since.

The fact that Wards knew about that mistake and had failed to correct it after five months and three reminders is proof that it is part of their policy, written or unwritten, to unfairly charge their clients when the opportunity presents itself. How many credit card holders are able to determine if they are being charged the correct interest or not? Almost none. The credit card companies know this and take advantage of it to rip individuals off. If they have one million customers and overcharge each customer only 50 cents a month, that would amount to 6 million dollars a year of stolen money. Montgomery Wards steals like that and it is likely that other credit card companies do likewise.

TAKE NOTE: Credit card companies are driven by the profit motive. They make some honest mistakes, but many of their mistakes are brought on by their desire to milk the customer of every possible penny. Therefore, never take advantage of any credit card offer unless you get it in writing beforehand. Whether they are deliberately trying to cheat you or simply make an honest mistake does not matter: YOU GET RIPPED OFF EITHER WAY. Why? Because the law does not favor the individual in case of a dispute. The law will favor the business, in this case the credit card company, because white power functions that way.

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