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FP Article 23 (To sign up for a FREE 6-lesson eCourse on Defeating Credit Card Debt, please click here.)

Credit Cards - Beware the Retail Therapy Trap!

by Rajen Devadason

For I don't care too much for money,
For money can't buy me love.

John Lennon and Paul McCartney

  Credit cards are the tools many of us use, overuse and misuse to exercise personal retail therapy.

Almost all of us are familiar with reaching the weekend feeling drained by the vicissitudes of work and life. Often the way we choose to relieve stress is to metamorphose into 'mall rats' and shop until we drop!

Within reason, there's nothing wrong with such behaviour. But too many people are so focused on 'rewarding' themselves that they end up in deep financial trouble.

 

 

 

 

 

 

 



Logically, the only valid reason to 'reward' ourselves through an entire shopping spree or even a single purchase is if we've been especially productive in a purely economic sense. For instance, if you typically earn $3,000 a month, but through a combination of smart planning and extra effort bring in an additional $1,000 this month, then a solid argument can be made for whipping out a credit card to make a $200 to $300 feel-good purchase like a new belt, handphone or garment.

But if additional money has NOT been brought into your life through your own industry, then it becomes dangerously counterproductive to use those magical pieces of plastic to spend money in a sad attempt to 'buy' self-love.
 

This is an article on the dangers of overusing credit cards in a bid to exercise so-called retail therapy. I hope you enjoy reading it. But if it isn't what you're looking for, you're welcome to search for something that better meets your needs. Thank you for allowing me to serve you.

Rajen Devadason

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Even if you don't personally suffer from this odious ailment, I'm sure you know lots of people who do.

Different people deal with stress in different ways. Some go on a gluttonous binge or drink themselves into a stupor, others curl up in bed for the weekend, but the most economically damaging and ultimately ineffectual way of de-stressing is spending money you don't have to buy stuff you don't need to impress people you don't like, all in  a vain bid to 'feel special!'

You see, each of us needs to realise that we already are special. And it has nothing to do with the amount of 'stuff' we own! Therefore, no amount of unnecessary shopping can make us more special.

However, initiating a red-hot meltdown of your plastic pal's credit limit will, in most cases, severely hurt your long-term ability to live fabulously well in the future.

While we seem to be talking about debt management, in reality we're actually focusing on cashflow management. That's because sound personal cashflow management is crucial to retirement planning - my area of professional passion. It's crucial to retirement planning because careful, consistent cashflow management helps people mentally reassign their priorities.

It is vital to realise most people aren't stupid, irresponsible or weak. But that's precisely how many of us end up acting when we fail to understand these
4 core facts of financial life
:

 

1. Each of us will only earn a finite amount of money in our entire life.

2. This finite sum is required to pay for everything we will need till the time we take our final breath.

3. The time we have available to earn the bulk of our lifetime income is usually only 30% to 50% of our entire lifespan.

4. Therefore, money should be stockpiled during the high earning years to meet the needs of an uncertain future.

 

Please bear in mind all 4 facts as I tie each to possible runaway credit card spending.

WHAT THE 4 FACTS HAVE TO DO WITH CREDIT CARD-FUNDED RETAIL THERAPY:

 

1. Each of us will only earn a finite amount of money in our entire life - this should be remembered each time we put charges on our credit cards that we don't have the money to pay for in full at the end of the month. The interest we pay on the unpaid balances reduces the total amount of money available to fund our future expenses.

2. This finite sum is required to pay for everything we will need till the time we take our final breath - so spending heavily with high interest-costing plastic has the net effect of reducing the quality of our future lifestyle.

3. The time we have available to earn the bulk of our lifetime income is usually only 30% to 50% of our entire lifespan - so I work closely with my best motivated elite financial planning clients to gradually ratchet up their personal savings rates to the 40% to 50% range. This is much higher than the conventional advice of saving 10% of income, which is still better than nothing but is, in most cases, insufficient to meet all future expense needs.

4. Therefore, money should be stockpiled during the high earning years to meet the needs of an uncertain future - time and cerebral sweat should be expended to learn how best to save and invest wisely for tomorrow.

 

In the final analysis, a much better way to reduce stress and exercise true self-love is to organise your finances in a manner that leads to a gradual but inexorable strengthening of your personal economic position!

Note: Those who continue to seek retail therapy are dooming themselves to doing the opposite.

Finally, it seems to me an absolute no-brainer that each of us should aim for strength, not weakness. (For additional study, read my articles Escaping Debt Slavery and Credit Cards - Friends or Foes?)

 

© Rajen Devadason

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Rajen Devadason, CEO RD WealthCreation Sdn Bhd & RD Book Projects
349, Desa Rasah, Jalan Bayan 7, 70300 Seremban, NS, Malaysia
Tel/Fax: +606 632 8955

 
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