Financial traps lurk around every corner. We fall into them when we become too smart in how we manage our money. Perhaps we think we can get a good deal with 0% financing, we have a budget, but don’t really follow it each month, or we try to be too smart and borrow from our savings. While on the surface they seem harmless, but dig deeper and you’ll see how they can rob you of your financial peace.
I know 0% financing seems to make sense. After all, you’re not paying any interest unless you miss a payment. A lot of people use 0% financing for TV’s and appliances. We’ve used 0% financing for items in the past. However, this is never as good of a deal as what it seems like. 0% financing is still debt no matter how you look at it. You’re locked into the payments every month until it’s paid off and there are typically big penalties if you miss.
The biggest problem with this type of financing is presuming you will always have the money to make the payments each month. The bigger the payment, the bigger the presumption you’re making. Surprise expenses come up from time to time and that’s just a fact of life. If money is tight, you might be forced to miss a payment or have to put that surprise expense on a credit card because of your 0% payment obligation.
Not Following Your Budget
We create a budget to manage spending to a plan each month. It would be ridiculous to say you’ll always stay within your budget. As good of a planner as you may be, there are still going to be times you spend a little more than anticipated. Maybe because you bought more groceries than usual or gas prices increased. But if you consistently ignore your plan and don’t correct overspending, you’ll dig yourself into a hole that’s difficult to get out of. Too much eating out? It will eventually catch up. You’re either forced to take money from another budget category to keep your budget in balance, or use your credit card. Otherwise, you don’t have the money to meet other expenses. Don’t beat yourself up about overspending, but don’t let it run out of control either.
Borrowing from Your Savings
Borrowing from savings is easy to do sometimes. Perhaps you’ve been told you’re getting a work bonus, but you won’t receive the money for a couple of months. It’s easy enough to spend ahead from savings and then some. But the problem is using money today you may need tomorrow. Again, life happens and we all need our savings from time to time.
Things get really complicated when you have to put new expenses on a credit card because you’re waiting on the future money to pay back your savings. Borrowing from savings gets more complicated when you borrow based on an assumption that you’ll earn the extra money later. What happens if you don’t earn that money? Again, you’re forced to swipe the credit card.
All these things are easy traps to fall into. Believe me, my wife and I’ve done every one of them and they’ve definitely robbed us of our financial peace.
What do you think about these traps?