ICFE eNEWS #19-22 - Jul 8 2019
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For nearly 20 years I counseled average Americans about their financial
problems. I noticed early on that there was a common set of money
mistakes these people had made. Here are the first four of those nine
mistakes (not listed in order of importance). The benefit of observing
and sharing these money mistakes is that they allow us to learn from
"the school of hard knocks" without actually having been enrolled as
Money Mistake #1. Being comfortable with debt.
Why would anyone choose to be a slave if he could choose to be free? One answer is because over a period of time, one seems to develop a "slave mentality." They have never known freedom and have gotten used to being slaves.
There is a very real sense that being in debt makes us slaves. The wise King Solomon wrote, "The rich rule over the poor, and the borrower is slave of the lender" (Proverbs 22:7 NRSV). Many in our society have been in debt so long, they have cultivated a "debt mentality." Because they have never known financial freedom, they grow accustomed to being in debt and accept it as "the normal way of life."
But just imagine what it would be like to be out of debt and not have a mortgage payment or car payment each month? Just think what you could do with all that money. Out of debt, you would not need as much money to live, and you would be free to use this money, once tied up in debt payments, for whatever you wanted.
Just think of being in your 30's or early 40's and being able to have discretionary monies of $2000 to $3000 a month. You could put a sizable amount away toward car replacement, house repair, or future education needs. And what would it be like to be able to write checks to your church or charities that are sizable in amount.
Being debt free would allow you the freedom to grow wealth quickly and give substantially.
Dear friend, it is high time we stop treating debt like an old family friend that has moved in to stay with us forever! We need to kick him out and send him on his way! There is no reason to remain enslaved to debt when we can be free.
Money Mistake #2. Not knowing what we spend each month.
The only part of the budget process that many people know is the "what I make" part. Most people are totally in the dark about the "what I spend" part. This money mistake is one of the main reasons why 40% of Americans spend more than they make each month. Sadly, most of that 40% are unaware that they do.
How can this be? Because by using credit cards each month, an illusion is created that makes us think we are doing fine financially. After all, the bills are getting paid on time. This may be true, but if the credit cards were put in a drawer and not used for two months, the bills would not, nor could not, be paid on time. Without the constant use of credit, we would see that we are running out of money before we run out of month.
Being smart with our money, no matter what amount that might be, includes knowing how much we spend in relationship to how much we make. Using credit hides that fact from our eyes. Once we determine what we are spending, we can bring our spending in line with our earnings by either spending less or making more.
To get to a destination, we must know where we presently are. That's why the first step in money management is always to know what we spend.
Money Mistake #3. Behaving like credit cards are money.
Many people say they know that credit cards are not money, but their actions betray their words.
Like the college sophomore who told me, "No matter how broke I am, I always have money in my pocket with my two credit cards." Like many, he was confusing the "buying power" of his cards with money.
But when we use a credit card we are not spending money, we are borrowing money in much the same manner as when we take out a loan at a bank. The buying power of our credit card originates from borrowing money from the credit card bank – we call that borrowed money "credit." If that credit is not repaid within a certain amount of time, a high interest rate is added to the debt.
I am convinced that if we actually viewed our credit cards as the ability to borrow money – money that must be repaid – we would greatly restrain ourself in their use.
Money Mistake #4. Being satisfied to make only monthly minimum payments.
Interest.com calculates that paying off a $2,000 credit card balance with an 18% interest rate at minimum payment of 2% would take 288 months or 24 years to pay off. So, if at age 30 you closed the card and just paid on it at monthly minimums, you would be 39 years old when you finally pay it off! But note, you would not have paid just $2000, but $6396.40, because of the added interest charges. I don't know about you, but I work far too hard for my money to spend it like that.
Next time we will continue with the rest of the "The Top 9 Money Mistakes People Make" (Mistakes 5-9).
*This article is taken from my new book, "The Nuts and Bolts of Cash and Credit: An Encyclopedia of Financial Knowledge," available on Amazon.com.
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023
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Paul S. Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)
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