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 |
|
|
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
