ICFE eNEWS #08-12
Ten Perspectives That Will Sink Your Financial Ship
by Jim Garnett, aka the ICFE's Ask Mr.G.
Our perception determines our practice, our belief results in our behavior, and our attitudes result in our actions. This is true in all levels of life, but especially so in the area of finances. The way we view our finances will determine the way we do our finances!
Therefore, my goal is to challenge and change many of the financial perspectives that are prevalent in today's society. Because each perspective covers such a vast array of specific situations, it does not take many faulty perspectives to sink one's financial ship! I've listed a few below!
1. "Credit cards are money". This perspective is understandable because both money and credit can buy things. But buying with credit creates debt; each credit card transaction is like taking out a loan at the bank.
2. "If I have access to buy it, I can afford to buy it.". Easy credit determines what we have access to buy; real money determines what we can afford to buy.
3. "They would not give me credit unless they knew I could repay it". We cannot trust the salesman to tell us what we can repay. The frequent bankruptcies and foreclosures would tell us that many lenders must be guessing wrong when it comes to who can repay what.
4. "Just tell me the minimum payment". I think of the single mother who thought she bought a new Blazer for $24,000, when in reality she paid almost $48,000. "So that I could afford it, they let me buy it over 7 years instead of the normal five", she said. Ouch!
5. "I don't need a savings account; I have my credit cards". Paying for emergencies with credit often creates another crisis down the road - like when the credit bill is due.
6. "Debt is ok, as long as the interest is tax deductible". I, for one, would rather not have debt than have a tax deduction for a percentage of the debt. I would rather generate tax deductions by giving to needy charities and organizations.
7. "I don't have any wants, just needs". If we were given $500 unexpectedly, most of us would immediately construct a list of things we need to buy with that money. Isn't it interesting that five minutes before we knew about the $500 gift, all the things on our "needs list" were just "wants"? Be careful - our wants become needs once we have access to get them.
8. "I can use the equity in my house to pay off credit card debt, go on vacation, or have extra spending money". This practice of using our homes like an ATM machine accounts for 14% of today's 64 year olds facing retirement with negative net worth. Our homes are normally 60% of our net worth - that is unless we have two mortgages on it!
9. "I am paying my bills on time so I must be financially healthy". Credit creates the illusion that we are staying afloat because we are swimming when in essence we are simply holding on to the side of the credit lifeboat!
10. "Having good credit is the most important thing to me". Good credit is important but it basically allows us to go into debt with good terms. Maybe we should consider that going into debt is not good, regardless of the terms.
Copyright © 2008. Jim Garnett
AskMrG Financial Library
2216 SW 35th Street
Ankeny, IA 50023