Think now or pay later: Avoid financial regrets

Posted at 9:06 AM, Sep 15, 2016
and last updated 2016-09-15 12:06:56-04

We know it as buyer's remorse: Most of us have bought something and later regretted the purchase. It's a good teaching experience, especially if it's on a not-too-expensive item.

However, there are less painful ways to learn about making smart money decisions. Avoid financial traps with these hints and tips.

There are no short cuts

Anything that sounds too good to be true, probably is. This goes for diet pills and that great "new" investment opportunity. In his book "The Millionaire Next Door," Thomas J. Stanley says, “Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.” The short of it is this: If you want it, you're going to have to work for it.

Whether it's increasing your income potential by finishing that college degree or committing to a long-term savings plan, just do it. Accept that it'll take work and time to achieve your goals, settle in and get started.

You have to spend less and save more

The best advice for acquiring wealth is saving money and living within your means. The internet is full of ideas on how to cut back. Some are as basic as sticking to a budget, but some you may not have considered like renegotiating your phone bill or cable service.

You can also invest in a few quality, staple wardrobe pieces that will last several seasons versus frivolously spending on cheap trend pieces that will only last a few washes. Another useful idea is to pay in cash. When it's gone, it's gone — so spread out your splurges and plan accordingly.

Borrowing from Peter to pay Paul makes both poorer

This is especially true if Peter is your 401(k) and Paul is anything short of a real emergency. Interestingly, if you type the word "borrowing" into Google, "borrowing from 401(k)" appears as the first auto-populated search suggestion. Clearly, it's a financial solution people consider. That search, however, will return a slew of articles explaining how, for the most part, this is a bad idea. Here is a summary of the words you will find in these articles: "risky," "penalty," "double taxation" and "generally bad idea." You get the picture.



Interest is your friend — at least it can be

Interest is friendly if you're earning it, but a brutal taskmaster if you're paying it. As of March 2016, the average household with debt owes $16,048 on credit cards, and almost half of all American adults carry revolving credit on their charge cards. It will take years to pay down a balance of that size by making the minimum monthly payments — and that's assuming you don't keep adding charges to it.

Of course, the best course of action is to stay out of debt. Credit cards can be your friend if you only charge what you can pay in that month. Use your card a couple of times during the month, then pay it off completely before you accrue interest. This builds your credit without amassing debt.

If you're already in debt, get out. U.S. News gives three strategies to help you zero your account. First, focus on the card with the highest interest. Second, focus on the card with the smallest balance, and third, try a combination of the two.

Short story: Pay off your debt and build up your savings. On the other side of the coin, you could be earning interest instead of paying it.

The information listed may not reflect the capabilities or practices at Desert Schools Federal Credit Union, but is rather meant to serve as a unbiased advisement and support of the financial health of our community.