SWB: Alan B. Rowley II - Success Coach - ECoaching - Email Coaching

Make More, Spend More

Have you found yourself in this trap?  You get a bit of a raise and you immediately look around to see what you can afford on payments with that amount of money.

I have.  Several times.

People make more money but they don't have more money, they have more debt.  The become more trapped and more vulnerable.  Each raise could bring them more freedom and more security but we aren't programmed to think that way.

The reason that I bring this up is because so many people could be inching themselves toward freedom.  With no change in lifestyle, things could be different.  If they put the money toward debt instead, they would find themselves with more money and able to buy more things.

I have said it before, I'm going to say it again, and I'm going to keep on saying it again and again until everyone understands it.  You can buy more if you don't pay interest.  You can have instant gratification without paying for it for the next 10 years.

You don't have to do it quickly.  You can use "windfall money" like we talked about earlier or you can use raises or any other source of extra money.  At the very least, if you don't ever charge anything on a credit card, you will eventually get out of debt.  The longer you pay though, the more money you are wasting.  It's up to you.

Have you seen this game? Have you played it?

Many people keep their debt at the highest level that they can.  If they have enough money to afford the low, low, monthly payment, they buy.  When they reach the point that they can no longer afford to do that, they have to go to plan B or plan C.

Plan B is the refi.  Take out the equity in your house and pay everything down so that you can charge everything back up again.  In effect, you raise your rent every 5 years.  At the end of 30 years, instead of owning a house, you are still renting your house.  Plan B works as long as the housing values are going up, which isn't right now so we have to go to Plan C.

Plan C is to get strict with yourself for a few months and pay off a couple of things to free up enough money monthly so that you can charge something new.  Unfortunately, this is a common game.

The good news about Plan C is that if someone were to stop and look for a second, they would realize how quickly they can pay things off.  It's amazing how fast this can happen when people are trying to get their shiny new toy.  If they would just keep it up for a little while longer, they would never have to charge again. 

I put this in the comments a couple of days ago but I'll put in this post to make sure everyone has seen it.  The danger with owing all of your money to someone else each paycheck is that there is no room for life to happen.

A lot of people are a doctor visit, a broken pipe, or a blown transmission, away from complete disaster.  If you take money from your bills to cover the necessary repairs, you find yourself behind on your payments.  Late fees and increased interest rates make it hard to get back on the plus side.  A couple of cards are late, then a couple more, and then you find yourself in a situation that looks absolutely hopeless.

If you make a late payment on a credit card, many companies increase the interest rate by 30% because now you are "high risk".  On many cards, the late payment penalty is more than the payment normally would be.  And if the combination puts you over your credit limit, you get zinged with an over your limit fee.  It's like trying to swim up a waterfall.

Which question is more important? Which one is asked?

I think that we agree that no one in their right mind would pay 3X what something is worth right up front.  No one is going to pay $20 for a value meal.  What kind of value is that?  But people do pay $20 for a value meal.  They pay $9 for a gallon of milk.  They are paying $7 a gallon for gas.  Everytime you put something on a credit card, they are imposing a rate hike of phenomonal proportions.  And they are choosing to do it.  What good little consumers they have become that they are willing to charge ourselves way more than things are worth. 

And why do they do it?  Either through ignorance or from putting the blinders on intentionally and asking the wrong question.  They are asking a question that advertisers and banks want them to ask.

How much are the payments?

What a devilish question designed to trap humans in financial bondage for their entire working careers. 

The question that people should be asking is, how much will this cost me?  That's the important question.  That's the one that matters.  Payments, schmayments.  How much is that value meal going to cost you?  $6 if you pay cash right now or $6 at 15% interest for 30 years.

I am being kind when I say that people pay 3x as much when they charge.  If you bought the value meal above with a 15% credit card and you were allowed to make minimum payments on $6, you would pay the credit card company $50.08 for that value meal.  That's some good value...for the bank.

But you are allowed to make minimum payments on a value meal aren't you?  When you add it on top of a card that you are already paying more than the minimum monthly payment.  You better savor that $50 Whopper like it's the best steak in town.

Tomorrow: "But I can't afford it"