Credit cards. Student loans. Store credit cards. Dental credit cards. Car loans. First mortgages. Second mortgages. Lines of credit. Zero-percent financing.
We're borrowing for everything!
How Debt Keeps us Constantly Broke
We are like crows, in a sense. Hey, look at that shiny thing, we think. And we want it. For major purchases, we think about it. We discuss the pros and cons. We ask our spouses, friends, or psychics. We see if we can afford it.
But we don't typically save up for it, simply because getting financing is so easy. When was the last time you saved up for anything?
The Last Time I Saved Up for Something
I was a high school junior. I'd been babysitting every summer and putting my money away in a “low interest” savings account (air quotes because I think at the time, I was “only” earning something like 4-5% interest!) and I knew I was saving for a trip. It was two weeks in Europe with 20 or so of my high school classmates. We raised money via car washes and I remember being able to pay my way in cash.
That was 15 years ago.
Since then, every single time I've wanted something, I've gotten it. Alas, still waiting on that pony.
I knew what I could afford, even though I only knew that in the most basic way: my monthly payment. I didn't keep cash around. I kept my money where it was safe: in circulation.
But I wasn't alone. And I'm not alone now.
How to Break Out of the Debt Mentality
We're used to paying monthly bills. Comfortable, even. So, even though we're all above average in math, we see 0% financing as a way to leverage our cash. We think: Well, sure, I'll finance a car at 0% and use the money I'd save in interest to invest in emerging markets, but we don't do that. Instead, what ends up happening is that we buy just a little more car than we wanted, with the thought: Hey, what's another $15 a month?
We must stop this madness!
In all seriousness, let's stop financing our lives.
Once you've paid off your credit cards, get out of the rest of your debt (except perhaps the mortgage) and start paying yourself.
The only trick to getting out of the debt mentality is to save for something you want, then buy it with cash.
Did you know that businesses give discounts for paying with cash in a lot of places?
Just Say “No”
We have to stop financing things. Refuse credit offers at the furniture store. Avoid getting a line of credit at the dentist. Use your credit cards (wisely) in order to earn points and play the game.
Start Saving Half
Here's my latest trick. Direct deposit now goes into two different accounts at two different financial institutions. My monthly paycheck is split 50/50, and because my new savings account is at a different credit union, I've made it more difficult to spend that money. I'm one step removed from that process.
And it turns out, one step is enough. All my bills come out of my other account, and that one is left nearly bare at the end of the month.
And it's working. I'm saving money! I was skeptical at first, but it works.
I've just moved in to a new place and the urge to buy new things (replacing my perfectly fine couches is high on my list) is strong. But I will not be one of those people who finance my living room.
If Murphy is real (and I believe he is) then since I just finished paying off my car, it'll behoove me to have a good chunk of cash where I can access it.
I won't call it an emergency fund. Rather, I'll call it a “now-I-don't-need-to-get-into-any-more-debt-to-finance-my-lifestyle-ever-again fund.”
It's a working title.
Do you have a debt mentality?