One For The Money

• Reasons understanding money is so important [03:34]
• When not to borrow money [10:11]
• Avoid credit cards at all costs [12:29]
• Building wealth is about discipline [15:55]
• Lessons from Everyday Millionaires [17:50]
• How to keep your spending simple [21:10]

Only borrow money when investing in appreciating assets. Borrowing money to buy real estate is a positive example. A car, however, is a depreciating asset. For example, if you purchased a car for $25,000 and were paying 6% interest on the loan, your car would be worth $22,000 the day after its purchase. If the car is paid off in five years, the total payments would have been $31,000, but the car’s worth would be around $7,500. 

Sadly, this was a lesson I learned the hard way. My twin brother and I borrowed money to purchase a used Jeep Wrangler. We fell in love with the vehicle at the auto dealership and even paid extra for drive-train insurance. Two days later, the clutch went out, and the dealership said it wasn’t included in part of the drive-train. That wasn’t the only issue we had with the Jeep. It was constantly in the shop, and we had expensive mechanical problem after problem that the dealership said our drive-train insurance didn’t cover. 

Credit card debt leads to long-term borrowing habits that are tough to overcome. Instead, it’s best to avoid developing these negative habits altogether and save yourself the trouble.

If you had $10,000 in credit card debt with 17% interest and paid the minimum payment of around $142/month, your balance would have decreased by only a dollar by the time interest is applied. I learned this lesson the hard way by borrowing money on a credit card because I had no other options. Because of that, I missed a few credit card and student loan payments. Later, a company ran my credit, and I wasn’t approved to buy anything. In my mid to late 20s, when I learned the power of money, I mended my ways, paid off all my debts, and maxed out my savings.

Budgeting is key to succeeding with money, but many make it harder and more tedious than it has to be. Keep it simple by maxing out your retirement and other savings, then spend the rest. This strategy has made one of the biggest differences for me. Because I was maxing out my 401k and my wife’s Roth IRA, I didn’t have to worry about budget categories since we didn’t go into debt for our regular spending.

Sometimes the easiest way to control your spending is to set bigger goals. It’s way easier to limit what you spend at restaurants and Amazon when saving for a trip to Tahiti, a newer car, or a down payment for a home. It has been way easier for me to skip restaurants and eat at home when I know that my family can enjoy new cuisines in another part of the world because of it.

Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC.

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