Say “No” to Instant Gratification

Say “No” to Instant Gratification

I remember it like it was yesterday. When I was in high school, I worked all summer to save up enough money to purchase a brand-new Sharp VCR from Wal-Mart. I remember how I felt when I finally walked into the store and laid down my hard-earned cash to make the purchase. I can still smell the fresh Styrofoam as I opened the box. I had zero regrets because it was worth the wait.

I also remember the times I’ve made impulsive purchases. Something would catch my eye that I wasn’t looking for (perhaps an infomercial??). After making the impulsive purchase, the product or service didn’t satisfy the same and guilt would eventually follow.

The Missing Word

There’s a word that’s missing from many of our vocabularies in America. That word is “No.” Saying “No” has become increasingly more difficult as we are now the most marketed to culture in the history of the world. That’s a fact. What’s more amazing is how much more effective (and less expensive) advertising is. The ads are more targeted now. They know what you want, or might want, based on your web and social media activity.

And what if you don’t have the money to make the purchase? No problem! It’s just 49 easy monthly payments of $1.99. Wait…what the heck did I purchase? A pair of running shoes?? And how much interest will I pay over these four years? Who cares…it’s just $1.99 a month. I can do it (although often the interest on an annual basis is anywhere from 39% – 400%). And no, that’s not a typo.

My old boss Dave Ramsey is often pleaded to by his listeners to run for public office. He responds with his classic shotgun laugh. But for fun, they came up with some slogans. One was, “Change…You’re Not Going to Like.” Another was simply, “No.” These were in reference to our government’s out of control spending habits.

Insert “No” Moving Forward

I read a time.com article just this morning regarding debt levels in America at every age group. The article opens with “Americans have fallen back in love with debt.” The statistics are staggering. We’ve exceeded debt levels prior to the Great Recession…just by a little. Below is from newyorkfed.org:

Aggregate household debt balances increased in the fourth quarter of 2017, for the 14th consecutive quarter, and are now $473 billion higher than the previous (2008: Q3) peak of $12.68 trillion. As of December 31, 2017, total household indebtedness was $13.15 trillion, a $193 billion (1.5 percent) increase from the third quarter of 2017. Overall household debt is now 17.9 percent above the 2013Q2 trough.

So how can we appropriately respond to this? Take a look at your budget and spending habits. Where do you see “No” inserted? Perhaps ridding yourself of credit cards would be a tremendous step. And what about that tax refund being applied to debt payoff or savings rather than a car down payment? Small steps like this go a long way.

Think about people from just a few generations ago. Could they finance a couch? Of course not. If they wanted a sofa, they were forced to save for it and delay pleasure. Today, we can stretch payments over five years. And no, I’m not buying the “Same as Cash” deals. It’s not the same as cash. Over 80% of these arrangements result in interest payments of up to 39% going back to day one. They win. You’re not beating the system. That’s why they keep on doing it and stretching out payments for even more years.

Saying “No” is healthy vocabulary. We need it in all areas of life. Prayerfully consider where you need to say “No.” Your freedom awaits.

Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.

What Can You Do

What Can You Do

I hope you had a nice February. If you live in Mississippi, we had our usual volatile whether. You may need snow gear one day and a swimsuit the next (slight exaggeration but you get the point).

Personally, this February is certainly one to remember as I had hip surgery. Fast forward to today, I’m doing well thankfully. I still have a journey of recovery ahead of me. But, to say it has been a joy ride would not be honest of me.

I had a close friend stop by recently to check on me. He was gracious to listen to me share how hard things have been. We all need folks to just listen sometimes, right? And sometimes, we need a friend to challenge us.

After hearing me share about the things I couldn’t do right now, he asked, “What are things you can do?” I paused. That had certainly not been my focus. I reflected on his question that night and the next morning. I started thinking about not just things I can still do, but what are new things I can do? I mentally came up with a long list and took action on some immediately. My spirits were lifted and some contentment returned.

I’m not writing a message about the “power of positive thinking,” but I am challenging myself, and you, to reflect on this question: “What are things you can do?” More specifically, “What are things you can do to make progress financially?”

With financial planning, there are many aspects that we can’t control and are forced to use some assumptions: inflation, rates of return, life longevity, etc. However, there are many aspects of financial planning that we can control.

What are steps that you can take TODAY to-

  • Begin a debt elimination plan?
  • Implement a budget?
  • Call the lawyer to get your will completed?
  • Increase your life insurance coverage?
  • Increase your charitable giving?

Don’t be overwhelmed by this list. Prioritize. Need help taking steps and prioritizing? That’s exactly what we do. Give us a call. We’d love to help.

Spring is just a few weeks away which I always welcome (well, minus the pollen). Spring is a time of new life, and it can be a time of new hope and purpose.

Take a few new steps and see what happens.

Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.

Three Ways Borrowing Money Was Bad For Me

Three Ways Borrowing Money Was Bad For Me

A recent New York Times article revealed some terrifying data regarding debt in America. Consumer debt reached $12.73 trillion in the first quarter of this year. While around 70% of that is mortgages and home equity loans, about 11% is student loans, 9% is car loans, and 6% is credit cards. While these percentages might seem insignificant, history suggests that this data is cause for alarm. According to this same article, the Federal Reserve Bank of New York reported that “total household debt in the United States had reached a new peak — $12.7 trillion — in the first three months of the year, another milestone in the long, slow recovery of the nation’s economy.” The article goes on to note that debt “accounts for nearly 70 percent of all economic activity in the United States.” (more…)

Phillip is an Associate Advisor and Creative Director at Rivertree.

You Can Thrive Financially Without Credit Cards

You Can Thrive Financially Without Credit Cards

Say what you want about millennials, but they seem to be making wise decisions when it comes to credit cards. A new survey finds that the majority of millennials are avoiding credit cards. A study commissioned by Bankrate and compiled by Princeton Survey Associates International revealed that 63 percent of adults 18 to 29 don’t have a credit card.

If millennials are indeed avoiding credit cards, many will urge them to reconsider. Today, it’s extremely common for family, friends, blogs, and banks to advise young adults to apply for credit cards.

While often accompanied with good intentions, encouragement toward credit cards may not be the best path forward for young adults. Millenials can thrive financially without ever using a credit card. Credit cards aren’t as essential as we think they are. The most popular arguments for credit cards are building your credit score, establish a credit history, reward points, and emergencies. But there are alternative ways to accomplish all of these things without credit cards.

“Credit cards are essential for building your credit score.”

Credit cards are a way to build credit, but they may not be the best way. There are alternative ways to increase your credit score and establish a credit history. One example is borrowing against an existing savings account or CD. Let’s say you have $500-$1000 of expendable cash in savings. You could go to your local bank and ask to borrow against what you have. The bank will freeze the money you have in your savings and then write you a check for that same amount.

Next, deposit the check into your savings. Ask the bank to set up an automatic withdrawal from your savings account and pay the loan back over the course of a year. You accomplish the same thing (increasing your credit score and establishing a credit history) without taking the chance of creating a credit card balance you can’t pay.

You’ll still have to pay interest and a small fee, but this is minor compared to the risk associated with revolving credit card debt. Furthermore, this is a great way for a young adult to learn the invaluable discipline of saving and establish a relationship with their bank.

“Rewards points are an excellent way to get ‘free stuff.’”

Everyone loves free stuff but using credit cards for points is risky. Credit card points are free for the self-controlled and expensive for the impulsive and undisciplined. Credit card companies know that impulsive consumers abound, which is why they rarely lose money from all of the “free stuff” they give away.

The New York Times interviewed a 25-year-old marketer who uses her credit card to rack up on airline points. Though she never carries a balance from month to month, it is evident her habits have disadvantages,

Time magazines piled up around her apartment and gathered dust after she bought a subscription simply because it came with an offer for extra points. And she has increased the amount of time she spends shopping on the Internet because merchants offer incentives online for cardholders that are not available in stores.

The same article goes on to note that “economic and social science research suggests that consumers tend to spend more using plastic than they ever would with actual cash.”

We buy what we don’t need and justify it because we are getting points. We feel less guilt when we splurge with a credit card than when we spend cash. The reward of points eases our conscious concerning our frivolous spending. As the saying goes, nothing is free in life. Everything comes with a price. At the end of the day, the “free” plane ticket isn’t free after all.

“Credit Cards are great to have for ‘emergencies.’”

Emergencies can happen to anyone at anytime. Whether it’s job loss, an unexpected trip to the hospital, car repairs, or a major home repair, there is no limit on how much an emergency will cost. Many promote using credit cards for emergencies as responsible and reasonable. But there are flaws in this logic.

If you know you have a credit card for emergencies, you lose motivation to save money and build an emergency fund. The money you should have saved becomes money blown on things you don’t need. It’s more appealing to spend extra money instead of saving it for emergencies, especially if you know you have a credit card for those emergencies.

Furthermore, you’re placing yourself at risk of paying more than you would have paid if you had used cash. A $3,000 emergency on a credit card with a 25% interest rate can quickly get out of hand. Now your revolving debt is a new emergency.

Finally, inconveniences become emergencies. When I was in college, I had an awful lot of so-called “emergencies.” Hunger pangs became emergencies. Boredom became emergencies. It’s so easy to swipe for so-called emergencies today and forget that a bill is coming tomorrow.

The Exception, Not the Rule

Using a credit card for the purposes above and paying your card off every month works for some people, but they are the exception, not the rule. How do I know this? In our office, we like to say, “Follow the money.”

Have you ever wondered how creditors make so much money? They have overhead costs and employees they have to pay — not to mention the free stuff. If the majority of people used credit cards correctly, creditors would close their businesses. The reason they aren’t losing money is that they know most people don’t use credit cards responsibly. Most Americans carry a balance forward each month, and creditors earn 22-27% on that money. Or we buy things we don’t need. Both benefit credit card companies.

The next time you give or receive advice about credit cards, consider the risk involved. There are safer alternatives for millennials and anyone else pursuing financial security besides credit cards.

Brent is a Financial Advisor with Rivertree Financial Planning and brings 15 years of experience in the financial industry to the Rivertree team.