Is it Good to Close Credit Cards?

Yes! But also, no! Like everything, it depends on your financial situation.  You may think about closing a credit card that you don’t use anymore, but that could hurt your credit score.

Pros:

Closing your card gives you one less credit card to worry about.  Whether you worry about missing a payment or having the card lost/stolen.  If you have one card that you consistently miss payments on, it’s probably best to just lose the card.

Cons:

Your credit score increases the older it is.  If you close your oldest credit card, your credit score will likely drop.

Also, dropping the card will decrease your overall available credit.  That means any credit you do use on other card will have a larger effect on your total credit usage; which is a number you ideally want to keep low.

Alternatives:

Instead of dropping the card completely, you could make a single purchase once every few months.  Don’t ignore the card completely, or the bank will close the card for you. If you have some other credit cards that are about the same age, then it shouldn’t affect you too much to drop one. I would just try to keep my oldest card, until my next oldest is at least a couple of years old.

Why You Should Take the Change in Your Tip Jar.

Working a job where you make tips is one of the most satisfying thing I have ever experienced.  Even if it’s just a few cents or a dollar every purchase, it quickly adds up.  When I first started making tips as a barista, I would always ignore the change at the bottom of the jar unless it evened out to a full dollar. This small daily habit could have ended up making me lose out on a considerable amount of money if I hadn’t noticed.

Below I have a chart showing how much money you could save in a year just by grabbing the leftover change at the bottom of the jar.

Days/week Cents Total in a Year
4 $0.40 $83.20
4 $0.25 $52.00
5 $0.25 $65.00
5 $0.40 $104.00

Although this may not seem like a lot of money compared to how much you make in dollars, you have to calculate the marginal cost/benefit.  Marginal cost is how much it burdens you to do something.  Marginal cost can include money, time, and stress. In this case, the marginal cost is small, because it’s money you have already earned.  One inconvenience is getting the change into your bank account or into a more liquid form. But this can easily solved with Coinstar, or finding a bank with a coin machine. Just get a large jar in your house to keep your change in and convert it to cash once a year.  The marginal benefit can be substantial, depending on the number of days you work.

Here’s the formula you can use to calculate how much you could earn:

Tips in a year=(Days working)*(52)*(Average change)

Do you grab the change in your tip jar? How much could you earn?

Compound Interest: When Less is More

Did you know that you can invest less money, but still end up with more money saved for retirement? Because interest is compounding, money you invest grows larger the longer it is invested.

Here’s a helpful chart to help you understand:

chart

This chart shows $100 growing at 8% annually over 30 years. Compound interest means that the 8% interest rate keeps growing off the interest you earned in all the years prior.  By year 10, your $100 is worth $200!  With simple interest however, you gain $8 per year every year.

Compound interest is the reason why you can invest less money earlier, and get huge gains in the long term.

Take the example of Chloe and Zack.  Chloe invests $2,000 each year from age 20 to 30.  Zack invests $5,000 each year from age 35 to 49.  Zack is investing more money, but Chloe has her money invested for a longer amount of time.  Here’s how their worth compares:

chart (1)

Although Chloe invests $22,000 dollars total, while Zack invests $75,000, she still ends up with slightly more money.  That’s because Chloe’s investment had more time to benefit from the compounding interest. (Interest rate here is 8%.)  Had Zack invested 5,000 for a couple extra years, or started investing a few years earlier, he could have caught up with Chloe, but at a much higher cost.

Not everyone is capable of beginning to invest as early as 20, but everyone should be aware of the benefits of compounding interest.  Retirement is not about being rich, it’s about being money aware.