Financial Traps

High Interest Credit CardThere are many ways you can fall into financial trouble, but you can always pull yourself back up, so never give up.  Today I was paying a credit card bill and was surprised to see the following picture.

Credit cards

I am currently in the middle of a process to rack up a ton of credit card points, but it’s not going as well as planned, but more on that another day.  I am spending a ton on the card and on when making a payment today I saw the how long you could be in credit card debt.  My bill was around $18,000, but the credit card company being so ‘nice’ offered to let my pay it off over 27 years!  The price of this would end up costing me an additional $28,000.  If I paid over 3 years I would only pay an additional $5,000, but of course I paid the bill in full and always have.  Getting in debt on a credit card is a trap because the interest rates are usually around 20% and this costs you a ton in the long run.  If you are in the situation try to stop using your card and refinance to a lower rate.

High cost of living

I would not recommend you to move just because you can find more affordable housing, but staying somewhere expensive sure costs a lot.  I was in the Bay Area this weekend and the cost of renting a room is the price of renting a two bedroom home in a lower-middle class suburb in Orange County despite it also being a higher cost area.  You may want to consider moving out of the big, expensive city or the rich suburb to a somewhere more affordable.  A caveat is that you may not earn as much.  If you make $100K in SF and have a $3,000 a month rent you will not be better off moving to a place where your rent is only $1000 but your salary is $50K.  Your rent went down by 2/3 but annually that is $24K after tax but you lost even more in salary.  Do the math before making purchases.

New car purchasing cycle

If you are constantly upgrading your ride then it is going to be difficult to build wealth.  Our Toyota Camry is by no means fancy, but over the past three years is has depreciated around $8,000.  That means we are losing $200 a month of value.  Imagine if you are going from luxury vehicle to luxury vehicle. One person I know said he wanted to get out of the rat race of buying cars as soon as he gets his next $85,000 truck; stop now and you’ll thank yourself  in five years when the truck is worth $30,000.  This is just one type of lifestyle inflation to watch out for.

Gambling

As I mentioned last week, beware of gambling.  It can be addicting and take lots of your money.  Set your limit before you purchase a ticket or enter a casino, if not then you may end up with a lien on your home.

Multi-level marketing

 

I have always been wary of multi-level marketing companies and was reminded of such by another blogger this week.  It is possible to make money in such a scheme but most people end up on the bottom and are not making money.  Use your time to build a skill or earn a bonus doing Lyft (currently $2,000 after 500 rides) or Uber.  We did Lyft and my wife is onto Uber shortly, read this if interested.

Conclusion

Take time to analyze if you are somehow trapped in a financial pit but haven’t realized it.  I’d recommend using Mint to track your finances to make sure your net worth is climbing.  Good luck everyone, we can all keep improving.

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