Finances, Part Five

Okay, you are probably reeling from Part Four, so I won’t push too hard today.  I hope that you spent the last week cleaning out your garage, closets, and storage sheds in preparation for a Yard Sale or eBay auction.  So, you are probably tired of my advice.

Today, let’s just take a deep breath and remember why we need to get out of debt.  I am going to make a big leap and assume that most of you buy into my premise that holding a large amount of consumer debt is not a good thing.  However, societal pressure (ie. Keeping up with the Jones’) may have led you astray.

Friends

We have all sorts of reasons to talk ourselves into buying crap we don’t really need and plenty of friends ready and willing to tell you that you deserve that nice new TV.  Rare, however, are the friends that will really confront you about your spending habits.  It is amazing to me that friends have no problem telling you just how you should spend your money, but rarely if ever do they sound the alarm of caution.

So, my goal today is to be that friend.

I have to use Credit

We have already talked about how being in debt makes you a slave to the person or company that lent you money, but beyond that I am not really sure we understand just how expensive debt can really be.  Let’s say you and your wife go out for a nice dinner and a show for your anniversary.  You decide to put this night on the credit card and pay the minimum monthly payment.

• Dinner for two: $100
• Tickets for the show: $155
• Wine and Chocolate during intermission: $25
  • Total Charge: $280

So you spent $280 and of course your wife was worth it.  Even though you didn’t have the cash to really afford the date night, you had to do something…right!?  Well, you might think twice if you realized just how much this night would end up costing you.  Take a look.

The Hidden Cost of Debt

Let’s make some assumptions.  Your credit card carries with it a 14.12% interest rate (the national average) and requires a minimum payment of $20.  Finally, your budget is non-existent so you can only afford to make the minimum payments.

If the $280 spent on your anniversary are the only purchases charged on that card you are looking at paying for your anniversary for the next 16 months.  Yes…that means that you will actually come up on your next anniversary and STILL HAVE 1/3 of a year to go paying for the LAST anniversary.  To add insult to injury you will also pay around $28 in interest over that period.

So, that anniversary dinner cost you $308.  And if you are like the majority of American’s that evening is not the only expense on your card and that probably isn’t your only card.

So, What?

Well, you might think…so what?  It’s only $20 a month and I only spent $28 extra in the long run.  But, does it really show your wife that you love her?

What you say is:

“Honey, I love you so much.  I am so glad that we got married 7 years ago.  I am so glad we are out tonight celebrating our anniversary in your favorite restaurant and heading out to a show you really wanted to see.”

What you are actually saying as you pull out the credit card is:

“Honey, I don’t love you enough to reduce our budget so that we aren’t living paycheck to paycheck.  I want to buy you nice things, but we can’t afford them.  So, I found a way that we can buy nice things without actually having more money: Credit!  I know that you will get stressed out each month as we fret about how we are going to find another $20 to pay the credit card bill, but you are going to LOVE this show and Hasting’s Wharf is your favorite restaurant.

Instead of admitting to myself that we have a problem with our spending and getting a hold of it, I have decided to ignore my own fears about our finances and give you the dinner that we deserve.  Instead of being a leader and recognizing that long term financial security is WAY more important than one dinner and a show, I am choosing to increase the financial stress on my family.  I will not apologize for this tonight…maybe in a few months when we hit rock bottom and finally I admit that I have done a horrible job…but tonight we will have fun.”

I promise you that any momentary disappointment about scaling back your lifestyle to avoid debt will be FAR less painful than the stress that will come as a result of poor financial decisions.