Kicking The Debt Cycle
This is the 2nd part of our list of Top Ten Financial moves to make in your thirties. Each week we will discuss the next move in the list. Number one was all about getting rid of your credit card debt. That is undeniably the most important (and difficult) step that you need to be taking.
A related 2nd step is to kick the debt cycle all together. Paying off all of you credit card debt will do you no good if you do not learn how to live your life without depending on your credit cards. For some, the availability of credit is a very dangerous thing. It’s so easy to just swipe a card and worry about paying for it later. However, this type of thinking is exactly what will keep you from ever having any real wealth.
Our generation seems addicted to living “as if”. As if you were rich, as if you did not have to worry about the long-term consequences of your financial actions. I see so many people walking around in $220 True Religion jeans, wearing Tag watches, and driving leased BMW’s. Sure, there are some people who can afford these luxuries, but most of the people who are enjoying these things, are doing so on borrowed money – living on borrowed money is a sure-fire way to ensure that you will never be rich.
Just think, every time you buy something on your credit card, you are digging the hole a little deeper. With each swipe you are taking away a little more from your future. If you carry around credit card debt, you are even nullifying any smart investments you may be making. I can almost guarantee you that the interest you are paying on your credit cards is greater than the returns you are making on your investments – especially in this market.
Next time you think about charging something, ask yourself this question: Is what I’m buying going to appreciate in value? If they answer is no, then you are making a poor financial decision. Deferred gratification is the key term of the day.
Here is a list of a few major expenses that people commonly go into debt for:
1) Wedding Ring – Absolutely not, the number one reason for divorce is already related to financial pressure. There is no worse of a way to start off a marriage than with a heap of debt from an engagement ring.
2) Grad School - This can be a good and reasonable thing to go into debt for, but all major decisions like this should be evaluated with caution. How much will the degree actually improve your earning potential? – If it will significantly increase your earnings in the long run, then it may be a great decision.
3) Car – Ideally, the answer would be a big fat no on this one, but realistically, it’s hard for younger people to come up with enough cash to buy a car outright. A car is bad purchase to go into debt for because it is going to depreciate, but it also can be a necessity for life, and work.
4) Travel - No. You may feel you deserve a nice trip because you work so hard, but charging travel is a terrible idea. The memories and relaxation may be important, but paying for them over the next several years is not worth it.
5) Furniture - No. Once you get your own place it can be tempting to furnish it just the way you would like, but financing furniture is a very poor choice – especially through in-store financing options. Remember – Deferred gratification!
6) Home – Yes! As with any big financial decision you need to do your share of due diligence, but generally speaking buying a home is a great idea. Just plan to stay there for five or more years, and make sure you account for the unexpected costs like insurance, repairs, and taxes.
Check out the first article of this series and learn how to Start The Fight Against Credit Card Debt
