When I was young, my parents taught me the basics of finances at an early age. We practiced balancing a checkbook, recording transactions, and even went over the good, and bad, sides of accruing interest. It was extremely important to them that I kept a good grasp on the money I spent to ensure it didn’t surpass the amount of money I had available. Sometimes they mentioned how the price of things went up over time or how back in the day, some payments weren’t even a thing. I never knew just how expensive life was until I got older, and it continues to amaze me even now.
Money is one of the biggest driving motivators in the world. Not only does it compensate us for the work we do, but it also gives us the ability to step away and recharge with vacations, trips, or fun purchases. The love of money is the root of all evil and can lead to greed and destruction of insurmountable proportions.
When we think of income and expenses, there’s a common yet deadly misconception surrounding the idea of affordability. Lots of purchases seem affordable on the surface level, but that’s not always the case. We must train ourselves to go beyond what our eyes first see to find the fully loaded cost of an item or decision.
Let’s look at the affordability of upgrading a car as an example. Imagine you had a vehicle that was paid off, maybe it was a little older in age, but everything still worked just fine without any mechanical issues. You decide you want to upgrade to a newer car with Apple CarPlay, heated seats, and maybe self-driving features. You go car shopping and settle on one that costs $75,000 MSRP and your monthly payment comes out to around $900 a month for 8 years.
Perhaps you have a strong income that allows you to spend this monthly payment without any glaring problems. Of course, you initially think that you can afford to purchase this vehicle. The sad truth however, is that you have to take the additional insurance, maintenance, and gas costs into consideration before you’re able to really say if the vehicle is affordable for your situation. If adding in the other expenses pushes you to the limit financially, more than likely that vehicle is way out of your budget.
One of the biggest money traps is having a car payment without a strategic and specific plan. I know this may sound like a crazy idea, but the best way to buy a car is in cash. That way, you don’t have to owe a bank or unnecessarily stretch your financial situation thin. You also have to consider the opportunity costs and what you’re losing out on by having so much money wrapped up into a depreciating asset. Just because you can swing it, doesn’t mean you should.
This example can be extrapolated to fit any financial decision or purchase you might make. Another good example is analyzing the cost versus the benefit of getting another collegiate degree or certification. Yes, they will more than likely help you make more money, but you have to make sure you don’t take on more debt than you’ll end up making after completing the program. Sometimes extra education is not worth the tens of thousands of dollars you’ll have to pay back in the end.
It’s extremely important to keep an eye on your finances because this capitalistic society welcomes you to overspend and go into debt for material items you don’t need. Long gone are the days when you could actually enjoy things without having to spend money just to get access. Streaming services are hidden behind paywalls, some video games not only encourage, but force players to spend money on microtransactions to make gameplay bearable, and certain hobbies require decent financial commitments that make you question if it’s even worth having fun.
If you’re not careful, it’s incredibly easy to just lose track of where your money is going. Sure we see the deposit of funds on pay day, but what does our account look like if we track every single penny? Is there a negative number that penalizes you with overdraft fees? Are there missed minimum monthly payments that result in late fees? Do you feel like you’re working super hard but just not getting anywhere or making any progress on your financial goals? All of these might be indicators that you’re setting money on fire and should serve as a warning message to take more control over your spending.
Since money is now widely spent in a digital format, it’s sometimes hard to conceptualize just how quickly you can waste money on nonessential things. For example, Amazon has gotten many households into debt simply because of the ease and convenience of having a huge catalog right at your fingertips. Suddenly wants become needs and now you have packages getting delivered multiple times each week for items that simply aren’t necessary.
If you don’t have the cash in a checking account to cover purchases like 61% of Americans, you might turn to the slippery slope known as credit cards. Unfortunately, it’s super easy to fall victim and spiral into huge amounts of debt simply because of how easy it is to spend money with credit cards. If you’re not well educated on how to best utilize them, the deck will be stacked against you from the very beginning.
Many people wrongfully assume using credit cards is using free money that won’t have to be paid back. Unfortunately, borrowing money without fully paying off the balance each and every month is a recipe for financial disaster. The amount of debt you hold can also restrict where you live, add to your daily stress levels, and in some cases force you to work longer than the typical retirement age.
Any interest accrued on a standing balance is literally money flying out the window in an unproductive way. You never want to pay out interest to any credit card company, consumer loan, or car loan if you can help it. Some loans like mortgages have the interest built in without any option to pay early or remove it. The vast majority of loans however, are optional and have ways to avoid paying interest. If you choose to use credit, paying your monthly statement balance in full EVERY month is the only way to avoid simply giving away your hard earned money to businesses that could care less about your individual financial situation.
Making smart money decisions is definitely a skill that must be practiced. Sometimes you have to take the hard route and prioritize accomplishing certain goals over buying things you want. If that means it takes longer to buy a PlayStation 5 because you’re working towards a fully funded Emergency Fund, that’s just a sacrifice you’ll have to make. If that means siphoning off 30% of your monthly income to put towards retirement accounts simply so you have the resources you need later in life, you’ll have to make that a priority and stick with it.
The ultimate goal is to have financial freedom where you don’t owe anyone anything outside of maybe a mortgage that generates equity. All other expenses ideally should be funded and paid for with cash in full each month. At the end of the day, you have to remember that this society is about making money. Take your finances seriously to prevent any avoidable mistakes that could be detrimental to your future.
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Signed,
Jessica Marie
