You had me at “Decide That You Want A Simple Life”

I broke rule #2 when I started out. I used a credit card to buy everything I needed. Terrible move, but it hasn’t been too bad. It gets paid on time and I haven’t had any problems. Still, I can’t wait until I get to stop worrying about it. Credit cards are indeed a disease!

laziness and happiness, that is exactly what someone needed to remind me of today! THANKS!

Great tips! I’m not sure about #3, though; the dark Jedi down the hall keeps telling me that my anger gives me focus. Maybe that only works when my anger comes from having to work late to meet an unrealistic deadline at my day job.

I disagree about the credit cards… knowing how to responsibly use credit cards can be very important to a freelancer, since we can’t depend on a regular paycheck.

Like you advise and agree with them.

However, there’s a twist on credit card usage. I use it frequently but fully pay up the debt each time. This means there will be no financial charges and my debts only have a lifespan of about one month. Reason: the credit points that I can use for future purchase discounts! (In my country, that will amount to purchase coupons for books, gifts, phones, …) But you mind has to be clear on not to over-spend.

“…responsibly use credit cards…”

That’s how they get you hooked. Anyone else experience this scenario:

You’re 20-something and you just got your first credit card, maybe a student Visa or something along those lines. Your brand new credit card is awesome, it allows you to make online purchases, rent cars and other items, and it has a sweet $500 limit that you can pay off in a month. Super cool.
A few months later…
You start to freak out a little bit because your credit is up to $300! Shit, that’s over half of your entire creidt! Better pay that debt before you get into trouble, right? Right.
Years later…
Since you’ve been diligent with your payments and a “responsible user” your financial institution has quietly raised your limit to $12,000 over the last few years. You now hold a debt of $3,000 on your card but it’s okay because that’s not even close to your limit, or even half of your limit—wait now, some time ago you were freaking out over $300 and now you’re all comfortable with $3,000?!

Credit cards are not a disease or an addiction. They are a designed tool to produce profit—and they do their job horrendously well:

- According to American Consumer Credit Counseling, the total U.S. credit card debt in the first quarter of 2002 was approximately $60 billion (okay, that was 6 years ago—but $60 billion makes for some tidy profit).

- The average credit card interest rate is around 18.9% (ouch).

- Approximately half of all credit card holders pay only their minimum monthly requirements. Consider this: A $1,000 charge on an average credit card will take almost 22 years to pay, and will cost more than $2,300 in interest ($3,300 total) — if only 2 percent minimum payments are made.

That’s enough statistics. As always, statistics are 89.3% correct.

For something actualy useful, have a look at The Motley Fool (http://www.fool.com/personal-finance/credit/index.aspx). They have some great articles and tools on there, many of which are free. The Fool has helped me tremendously to understand finance and even got me started in investing which is something every freelancer should do. I would love to see some sort of colab between The Motley Fool and FreelanceSwitch…in fact I think I’ll suggest this.

Work for your money once—then make it work for you. Not the other way around.

“I still consider the possibility that there are secret mind controlling rays that come out of my computer and make me grouchy. ”

Funiest. Bit. Ever.

I have to say with #2, that is not the case. I recently started a business with my partner and we had to finance a computer for about $6500 with everything. We needed this computer to be able to handle the video post we were doing (we make commercials http://www.spots4.tv). Since we did our first commercial for FREE, I have since gotten $10,800 in business. This took just over two months. So I don’t think it is always bad.

It just depends on the details of the decision.

@Bern & Kevin: Bern, I know all about the scenario you described, unfortunately through first hand experience. Credit card companies know exactly what they are doing, you have experience a sense of security knowing you have instant access to thousands of dollars ’should the need arise’. Problem is that need arises all to often. I do get what Kevin’s saying though, although handling ups and downs in income is best handled through lines of credit, or better yet a savings cushion. Don’t blow that payment for your last project on a new laptop, put it in the bank.

A few years back, I was self employed as well, however due to previous stupidity (mostly because of credit cards) I had also been bankrupt. That meant I didn’t have any credit cards and coudn’t get them. It was a serious inconvenience for doing business online. I would submit that credit cards are almost necessary for this. There are other advantages to credit cards – travelling, for instance, is much better handled through credit cards.

There is a responsible way of using them, but I agree about not financing your life or business with them.

@Peter – Well, that’s great for you. But, what about the ones who financed their $7000 computer and didn’t make a penny? That is great that you did so well, so quickly.

But for the others…what does that say about your business model? “I’m going to start a small freelancing business – and the first thing that I’m going to do is dive $10,000 feet into debt. I’d recommend that you save up and start your business the right way.

What you have to take into consideration is “risk”. It must be factored into the equation. Sure, some businesses might take off – where you can then immediately pay off your start-up debt. But, an enormous percentage of businesses fail in the first year – leaving the owner with a pile of debt.

…Not to mention the fact that, on average, people tend to spend 7-14% more when using credit cards as opposed to cash. There is a reason why the credit card industry is a billion dollar one.

(P.S. You’ll never use the miles!)

There is absolutely nothing wrong with using a credit card to make major purchases, such as a computer upgrade, IF the credit card bill is paid in full when due. If the cash is in the bank, the credit card is safe to use. It is for those people who misuse credit and buy beyond their means that credit card debt becomes a problem.

@Caryl – 50% of credit users only pay the minimum amount each month. Plus, if you have the money in the bank, why not just pay with cash? Is it really that important to keep the money in your account for an extra 25 days? If so, maybe you should reconsider the purchase all together.

-Additionally, you have much greater negotiating power when paying with cash.

I’d love a simpler life, unfortunately it doesn’t seem to sit too well with making money for me. In fact freelance has always been a lot more complicated than being employed. And so I’ll still be on my Mac way into the small hours most nights…

Yes, I want a simple life. What you wrote are really great tips. They’re so great that I can relate to each and every word you said especially step 5. Thanks for this post!

I fully agree with what you say about credit cards. I also agree with Bern when he says that credit cards are “a designed tool to produce profit—and they do their job horrendously well.”

As for his advice on investing, I’m not so sure. Quite often, the word “investing” seems to mean “putting money into mutual funds or individual stocks.”

Yes, this is one option, but it’s not the only one.

I had a very dear friend who became quite wealthy by:

1. Practicing extreme frugality. His primary mode of transportation was his bicycle, and he lived on a $4/day diet of oats, beans, rice, and powdered milk.

2. Putting his money into Treasuries. He’d lived through the Great Depression, and that experience made him very leery of the stock market. In fact, one of his favorite expressions was, “I’m more interested in the return OF my money than the return ON my money.”

During his later years, he turned into quite the philanthropist. And his generosity lives on — there are numerous people and organizations that are benefiting from his bequests.

Thanks for the advice. These little reminders always seem to come at just the right time.

I burned the candle at both ends a few weeks ago to meet a big deadline and nearly threw myself into a major health crisis. Must….learn….limits. Thanks for the reminder.

Just to throw in my 2 cents: I’m a big fan of avoiding credit cards at all costs. They’re a trap a young entrepreneur simply cannot afford to fall into. Can they be used as a tool in the right hands? Yes. In our immediate-gratification-seeking, grab-’n-go society are there many of us who know how to responsibly use them? No.

Failure to responsibly keep up with personal debt is a big reason our economy is in it’s current slump. Freelancers don’t need to be contributing to the problem.

I’m a big fan of Dave Ramsey, who teaches courses on getting out and staying out of debt. My wife and I went through the course a couple of years ago and it completely changed our outlook on budgeting, spending, and being patiently content with what you have until you can pay cash to get what you want. Good stuff. You guys should check it out: http://www.daveramsey.com

Peace (in a totally non-partisan way)!

@jeffery, I could care less if 50% of people can’t control their spending to safely use a credit card. If you have money in the bank and are responsible, why WOULD you pay cash if you have a rewards card, etc? 1) Hopefully your earning some sort of interest on that money 2) you get CC rewards.

If you don’t have money in the bank, you shouldn’t be making the purchase. Period. That’s just asking for trouble. If you can learn to use a CC as an extension of your bank account, you can squeak out a little extra gas money for very little effort.

If you can’t handle a CC with available balance burning a hole in your pocket, you need to stay away, but if you can, do it.

(been buying everything on a cash back card for years. Pay off in full every month with money sitting in my bank account for a month)

Good post!

Instead of just “credit cards”, what about just plain old debt? I’ve been smothered by student loan debt for the past several years, and that is something I couldn’t have possibly avoided if I was to attend college. I’ll be looking to be able to get rid of those in…..maybe seven years? Yeah, it’d be peachy to just get rid of it all, but unless I hit the jackpot in the lotto or something, that won’t happen for a while. Making payments has been especially fun this year, what with the price of practically everything skyrocketing, and this is even after landing a job that pays slightly more.

Who won’t use the miles? I get a $1000+ credit to my Amex Blue Cash card every December (3 years now)!

I suddenly have an urge to go to Home Depot and put one of those large metal sheds and a roll of insulation on my credit card. It wouldn’t matter because my life would be so simple and the credit card bills and collectors would never find me out at Walden Pond.

Thanks for the call…!

Love the formatting in the article as well (the bold text, the quote, etc).

Good advice. My wife and I need to take heed to #1 for sure! Especially as I am wanting to transition out of full-time corporate life to freelancing. Thanks for the encouragement.

@Kel – Considering the fact that you travel to Belgium 3-5 times a year – not to mention your other work travel – I think you’re in a unique position. You’re not the one paying the bill when it comes due.

@John – Most people would be happy if they got 2-3% cash back on their card. I guarantee that, if I used cash on my big expenses, I could get a much bigger discount… I mean reward. Plus, I eliminate the risk element.

I was a big fan of credit cards too – because of the cash back program. But since then, I’ve decided that the amount you earn at the end of the year is negligible. I’d rather focus my attention on more profitable ways of making money.

P.S. @John – Please post a link to your bank records so that we can review your information.

The life is simple, the modern life that is complex. When you simplify your way of live you have back the beauty of life.

@Jeffrey – Sure, about 25% of my spending is from work travel – the rest is normal household (many of my normal bills are charged to it automaticaly – electricity, gas, AT&T, etc.) — no risk of a late payment or overdraft. I love the fact that I get 5% back on groceries and gas (the two big ones in recent inflation). All warranties are doubled up to a full extra year, if I have a problem (and I’ve had a few) I can file a complaint and get the money back, I get rental car insurance (which I recently took advantage of to the tune of $800), etc.

I see the logic, but using cash instead of credit cards seems the opposite of simplification to me. Is the envelope system going to give me more time to spend with my kids than laying down a credit card? And how much longer do we think cash will even exist? And how does using a credit card cause one to spend more money while a Check Card doesn’t — perhaps it does. I find it hard to believe. The cash argument, yes, the check card argument I doubt. This is the weakest of Dave Ramsey’s arguments, IMHO. The debt free stuff is wonderful and I’m 100% in favor of simplifying everything.

Cash offers no buyer protection, no automatic categorization (eg. mint.com), and my dang wallet is already full of receipts… It is that automatic categorization that helps me save money – I know when to question the wife on that $400 Target trip I didn’t hear about.

@Jeff McKeand, it’s nice to see another Dave Ramsey Fan on here! My husband and I took the class at the beginning of the year and it helped us get more focused on the budgeting and working our debt snowball. I eagerly look forward to the day we can call in and give Dave our Debt Free Scream!

I started my freelance career in January and it is completely debt free! I don’t use a credit card, but pay for everything with my trusty debit card. Saving up to be able to pay for that new computer without financing it, will make the new toy more enjoyable. Not having to pay debt to keep my business afloat is freeing and I highly recommend it.

@Kel A debit card would offer the same protection you are seeking, but you of course would have to have the money in the bank to cover your expenses. Your way may seem to work for now, but you’re playing with fire and there’s a good chance you’re going to get burned.

“I guarantee that, if I used cash on my big expenses, I could get a much bigger discount… I mean reward.”

Sure, if having cold hard cash gives you a negotiation advantage, that will save you a lot more than your CC “reward”. Common sense that I never refuted.

“But since then, I’ve decided that the amount you earn at the end of the year is negligible. I’d rather focus my attention on more profitable ways of making money.”

That is a pretty odd statement. Using a CC is a lot easier than carrying cash around, and for what? The 30 seconds it takes for me to look at the bill and fill in one more payment box on my online billpay app? It simplifies your daily expenses (why did they make a check card is it wasn’t convenient?) rather then creating a burden.

Again, if you have the ability to pay off your bills and pay them on time, it’s worthwhile. If not, don’t even think about it.

My opinions for leading a simple life :

1. Stay away from credit card bug: As I saw so many families are destroyed and so many dreams are shattered. Even I have warned some of them about this vulture.
2. Live for present; never think about future as God will decide it through your deeds
3. Keep faith in God
4. Try to take blessings from the people
5. Never underestimate anybody
6. Always try to say that ” God, what you have gave me, I am happy for it ”
7. Always try to help others
8. Take care of your parents : As they are so precious that money can’t buy it. They never leave you in your adversity even your husband/wife or children or brother/sister may leave you. Their blessings to you are next to God.
9. Never compare yourself with others
10. Always keep yourself busy
11. Enjoy your life with your own resources
12. Try to expand your knowledge
13. Try not to be 100% perfectionist
14. Try to see yourself naked in front of a mirror : As your body will tell you how much you have lead a simple life. Every part of your body will show you something. As our body and our mind is identical twin. If our mind is open and youthful to our outer world, then our body will definitely show its indication. Sometimes we saw that our body demands something but our mind does not permit it, so we have to compromise for it to get our self in fine.
15. Try to share your experience with others but not your secrets
16. Always think that you are born to do something good for mankind
17. Whatever may be your profession, do it with love and sincerity
18. Try to make friendship with a great personality as you will learn so many things from him/her
19. Never try to impress others
20. Always try to appreciate a lovely thing
21. Look at straight as the rail line
22. Make yourself versatile if you can
23. Try to explore yourself

Here is what it boils down to, in my opinion. There is an extremely small percentage of the population that can use credit cards effectively – I’d guess less than 5%. If you are one of those people, then yes, I agree that it is a good idea to use them. However, for the other 95 percent, it would be a terrible choice. This is exactly why the credit card business is a billion dollar industry.

@Kel – I think you are definitely unique in this circumstance. A smart move for you – someone with zero debt and a nice income – isn’t necessarily a smart move for a freelancer living month to month – not knowing whether he’ll make $1000 or $10,000.

Plus, I 100% agree with the check card statement. I never suggested otherwise. If you’ll spend 7% more with a credit card instead of cash, you’ll spend more with a check card as well. I, too, agree that it is a weak argument.

@John – I’m still waiting on that link to your bank records.

I’m glad others have the problem of doing projects their not qualified to do as well. This article made me feel a lot better, thanks!

@Jeffery – “I’m still waiting on that link to your bank records.”

… Uhh … there’s a site that lets people link their financial standing? If so, please provide a link as anything I’ve seen uses security for a reason.

I don’t have anything to prove to you, as what I’ve said stands on its own. To satisfy your insatiable need for my financial standing, I’m not rich, but I’m debt free (minus mortgage and a car payment).

“This is exactly why the credit card business is a billion dollar industry. ”

*nod*

@John

- I was teasing.

No teasing allowed on the interwebs!!!!

@Maria: You’re welcome to restate Dave Ramsey-isms all day long. I keep hearing about getting burned. Let me know how your overdraft fees stack up over the years. PS – I spend over $50,000 with American Express per year and I can guarantee you that I have better dispute protection (for being that level of customer) than you will with your Visa CheckCard… One day, you will get burned on this. Snakes bite. I love it. We’re debt free. etc.

“If you can’t afford to pay for it with cash, you can’t have it! ” Such simple advice…if only everyone could live by it.

Step 5- is definitely my favorite