The story is a bit boring. People spend money they don’t have. But it is hard to ignore the story when it is so important. And so many people are foolishly ruining their financial future. When credit cards put you in jeopardy
Please stop. Don’t spend money you don’t have. Don’t think those political “leaders” that practice the same spending money they don’t have financial management are worthy of respect and don’t follow the bad example they continue to set.
The article gives some tips. I would suggest the tips for using your credit cards I have blogged about earlier. But the main thing is really simple: don’t use your credit card for loans – pay off your full balance every month. Save money for things you want. When you have the money saved, then buy them. This is not rocket science it is pretty darn easy. Don’t spend what you don’t have.
Related: Too Much Stuff – Financial Illiteracy Credit Trap – Poor Customer Service from Discover Card – Trying to Keep up with the Jones – Raising Taxes on Future Generations
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$2.54 Trillion seems like a great deal to me. Based on a population of 300 million people that would mean $8,467 for every person in just personal debt…
I posted before on how universities seek profits instead of helping students develop good financial literacy and habits. Here are some tips on how you should use your credit card..
“If I have the money and want to spend it, I can afford it. If I don’t have the money, I can’t afford it. I can just save until I can…”
It is no surprise those that spend what they don’t have personally, elect those that do the same thing for the nation…
Risky borrowers with low credit scores account for roughly 30% of outstanding credit-card debt, compared with 11% of mortgage debt…
Starting back in about 2005, the American consumer reached the point that they could no longer service ever-increasing amounts of debt…
“Lenders are not being charitable. They are simply trying to protect themselves. Banks and card companies are bracing for a wave of defaults on credit card debt in early 2009…”
[…] over stimulated using massive federal government budget deficits, massive trade deficits, massive amounts of consumer debt, massive amounts of unjustified mortgage debt and massive amounts of leverage. None of those things […]
Junk No, not bonds. Even bonds backed by sub-prime mortgages have some value, maybe more than people think I’m calling your attention to your junk, the kind that had no value from the day you acquired it. It’s the junk consumer goods you’ve bought over the years. Look around your house, from basement to attic and see the sheer mass of junk you’ve bought over the last 10, 20 or 30 years. Recall, painful though it is, how much you paid for stereo system after stereo system, Bose speakers, Sony Trinitron TV’s, Panasonic flat screen digital TV’s, kitchen gadgets from Williams Sonoma. Recall how you rationalized making all of these purchases as “investments” when at the time you bought them you knew better.
Think of the cars you’ve bought, the excise taxes you’ve paid to have them on the road, the insurance premiums and the frequent and costly repairs.
Thank of what you’ve spent in restaurants on inflated meal prices and on clothes you almost never wore.
Think of the so-called jewelry you’ve bought. The jewelry industry does a real number on you with this, setting up selling areas with lavish appointments and intense lighting. One of the great con jobs of all time was that pulled off by 19th century raconteur Cecil Rhoades (remember Rhodesia?). He acquired control of famed diamond mines in South Africa and created the myth, perpetuated to this day by DeBeers, that diamonds are scarce. What a joke, but think of the number who fall for it every day. If you think jewelry is somehow “different” and is an “investment”, just try selling a piece back to the jeweler who sold it to you or to any other. Just try it.
Think of all the money you’ve earned over your career and think of how much of it you have left. You’ve probably lost nearly all of it. Where did it do? It was spent on junk. The consequence is that, while you may have earned more than $1 million or even $2 million, you have little or nothing to show for it, other than a pile of AMEX receipts for junk. AMEX and its shareholders did well off of you. How well did you do?
Retailers now call upon you to corral your credit cards and start spending again. That’s good for them. How good it is it for you or your family? As Suze Orman has pointed out time and time again, we, in this country, are in deep trouble not because we spend too little but because we spend too much.
Now, for the real pain. The price to be paid for all the good times you’ve had and the junk you’ve purchased can be calculated. I’m sure you are familiar with AFLAC, the insurance company whose products are endorsed by a duck. Ho much do you think you’d have today had you invested $10,000 in AFLAC stock in October, 1980? The answer is over $2.3 million. That’s right, had you never saved another cent, never created an IRA, never participated in a 401(k), but had had the good sense to have skipped a car or two or maybe a few years’ purchases of clothes that went to the Salvation Army years ago, and instead had purchased AFLAC stock, you’d have over $2 million today, and that’s down from nearly $4 million due to Wall street’s recent slide. $10,000 was a fair amount of money in October 1980, but you know you have spent far, far more on junk. By the way, the AFLAC stock would be about 50,000 shares paying over $50,000 annually in cash dividends.
Think what you’d have if in addition to buying the AFLAC stock you had created and funded an IRA and had participated in your employer’s 401(k).
It’s never too late to break bad habits, habits that harm us. I don’t care what situation you face…you will always stand a better chance of obtaining a better outcome if you have money. We’re well into the liquidation of the bad debt of the early part of the 21st century. Mark my words, there will be more bad debt cycles to come. Resolve today that you will no longer be the pawn in a game calculated to keep you poor and in debt. Resolve to separate your wants from your needs and to stop buying things you don’t need. Do you really need premium cable channels for which you receive a massive cable bill each month? Do you really need all the clothes you buy? Do you really think that jewelry is an investment? If you buy it at an auction conducted by Christie’s, Skinner or Sotheby’s and its can be established as having belonged to James I, Catherine the Great, or Nicholas Romanov, maybe it’s an investment. If not, I submit it’s likely more junk. Expensive watches are in the same category. The watch makers dummy up “auctions” where they secretly bid on their own merchandise so as to create the impression that watches are an investment. For them they are. For you, they are junk. Just try selling one. Just try it.
When you buy so-called “designer” goods, you are simply signing to pay more for something you certainly didn’t need but were convinced you had to buy to seem “cool”. You end up ever further into credit card or other debt and the “so-called “designer” ends up even better ensconced in Palm Beach. Good deal for him; possibly fatal for you.
When you don’t have money, you don’t have power. What you want is nether here nor there. Someone with money will tell you what you can have, what you must do and what you can’t have and what you can’t do. If that state of affairs appeals to you, keep doing what you’re doing. When you reach age 67, you’ll have less net worth than a high school kid and you may be working for one.
If you want your son to be able to apply to Stanford or your granddaughter to Yale and to be able to do so on the basis that no financial aid is requested, then change your habits today. The colleges would deny it, but you know the chances of acceptance are better if the applicant is not raiding the school’s endowment.
Stop buying things you don’t need and stop using credit cards.
You have no patriotic duty to be broke. Let your neighbors be the ones to buy products from the companies whose stocks you own. With some modest effort, you can begin building a portfolio today that will include shares in a sufficiently broad range of companies so that there will be almost nothing that other people can do that won’t in one way or another make money for you.
Oh, you say, who’d head of AFLAC in 1980? Granted, it was a far less well known company then. OK, let’s vary the example. I’m sure you’ve heard of Johnson & Johnson and Medtronic. $10,000 invested in Johnson & Johnson stock in 1980 would be worth $500,000 today. Invested in Medtronic in 1985, the result would be $600,000, and that’s after the current sell-off. It’s not the AFLAC $2 million, but it’s more than your junk is worth and it’s liquid.
Eat at home, stay out of bar rooms and malls, make your own coffee, make do with the clothes you have, cancel premium cable subscriptions. You’d be surprised what you can do without, and so doing is a very small price to pay for possibly becoming a millionaire. You may be the first on your block to do so. Keep in mind that the people who live near you, the ones who keep a low prolife, have old clothes and an older car, may have beaten you to it. What if they heard of AFLAC in 1980 or bought Microsoft at an adjusted cost of 10 cents per share in 1986? You just never know, do you?
Resolve today to learn something from this crisis, something that will benefit you and your family for all time. $1 million is not misplaced; it is lost $50 at a time. I close by quoting Jonathan Pond, CPA and lecturer on many PBS programs dealing with building personal wealth. “Your best dollar is the one you don’t spend”.
Richard E. Savoy
Boston, MA
total household debt at 94 percent of gross domestic product in the fourth quarter down just slightly from 96 percent when the recession began in late 2007…
It feels to me similar to a situation where I have maxed out 8 credit cards and have a little bit left on my 9th. You can say that failing to approve my 10th credit card will lead to immediate pain. Not just to me, but all those I owe money to…