Thursday, November 30, 2006

Money Lessons Learned

I have a confession to make.

I love shopping.

Yes that is me. A confessed shopaholic. I love nice clothes and I love nice shoes. I spend 20 dollars on a pair of panties that have enough fabric to cover most men’s pinky. I would gladly spend a few hundred on a handbag and eat protein shakes for a week. I buy expensive skincare. My jeans I buy based upon how they make my ass look rather than the price tag. I buy high thread count sheets. Not even the thread count you can buy at most stores – they have to be ordered. When I feel down I don’t go on a drinking binge or an eating binge – I run straight to the mall. It is my vice.

I am a retail stores best client. I am a sucker. I walk into the store and stupidly get the retail credit card because I get 20% off that day and fail to even think about the 22% APR.

Well – this got me into a lot of trouble.

Lately I have been learning a lot about effective money management and what being a credit card person actually does to ones net worth.

What it comes down to is this.

Credit cards are the demise of America (not my words.) But I believe part of this is true. With credit card debt you will always pay back way too much. So imagine you are buying a 100 dollar shirt – after you pay that off the card it ends up being like 150. And if you are only paying minimum payments or slightly more – well you are barely paying any principal.

Now – to give myself credit I have never had a late payment in almost 7 years.

I have been really good about no longer spending. I am sort of in a “time to get responsible about money” phase – hence the no shopping policy. But getting out of debt is a whole other story.

I sat down with a couple “money savvy” people. One is my uncle who has no debt – only one credit card and is very well off because he knows money. The other is my banker. Who, because he is a banker, obviously knows money said the same thing – debt can’t ruin someone.

So with a little help from my friends I have, with my newfound knowledge, come up with a repayment plan.

The first thing I did was transfer every balance to a low rate card. This I find out will cut my repayment time by half and reduce my interest by thousands of dollars.

I then canceled every single one of my cards. GONE. OUT THE WINDOW.

I will now be completely out of debt in 8 months.

However, my love for nice things will likely never go away. What can I say – it is just who I am.

I Rachel Heather am indulgent. And, I have come to find out this is not a fault – materialism is not a bad word – it just has to be managed.

So how am I going to do that?

First of all I am forcing myself to not buy anything not needed until I am out of debt. After that I was thinking maybe of some sort of budget but it has to be paid in cash.

Any ideas?

This is the dawn of a new age – the age of Rachel being financially responsible.

So to sum it all up – what I have learned.

Bad marks on your credit WILL come back to haunt you (I had two late payments when I was 18 that bring down my score  )

If you can’t pay cash for something – don’t buy it – unless it is a solid investment (car, home, etc.)

Keep only one low APR credit card and only put on there what you can pay off at the end of the month.

So what kinds of money management and money “rules” do you all follow?


-J said...

Hello, my little shopoholic.

A few things:

1) Cars are *not* investments. Unless it's some sort of collectible car that will appreciate in value.

2) It is often good to have a credit history and to have two credit cards.

3) It is better to have credit cards with a half full balance, oftentimes, than a completely empty balance. The idea is that when the borrower has large lines of credit they can draw on, a bank sees them as a riskier person to lend to because they could run up all this additional debt.

4) I am proud of you. Admission is the first step.

5) There's a Website that is pretty cool that might be helpful for you.

Thomas said...

Do you despise people who aren't that into shopping, Rachel?

deepsat said...

confessions from rachel :-)

well for starters, avoid using credit cards. use cash or debit card so u can feel the impact directly.

allocate a budget for shopping if its something u HAVE to do! or else avoid shopping for a while and then gift yourself with a small spree once! but don't gift yourself too much :-))

and keep a watch on the balance every week. set a water level and try to make sure it never goes below to water level!!

come on u can do it!!


Rachel Heather said...

J - 1) you are right it is not an investment - but I mean like a purchase that usually has to be paid with a loan.
2) that might be true but until I learn I should probably stick to one
3) half full!!! why?? I think that may be true for some but I know some real estate investors that have zero credit card debt. Why half full if you keep paying more than what you bought?
5) Thanks I will check it out

Thomas - of course not! In fact, guys who are not that much into it balance me out more. :)

Deepsat - very good advice :) Yeah I am thinking like a budget that I somehow have to make myself stick to. No credit cards will help because then I can only spend what money I have. Yeah with credit cards you dont realize how much you are spending because you dont feel the impact right away...tricky.

Scott said...

Sorry, you lost me at panties that would not cover most men's pinkies...

No just kidding. You sound like you are making the right moves. Being out of debt is the best feeling ever. You will end up with more money to spend and more to save.

Good luck.


-J said...

Yes, it's counter-intuitive, I know. It's always best not to have high balances, but then if you have a lot of credit cards with little or no balances the banks sometimes concern themselves with lending to someone that could run up $100,000.00 of extra debt tomorrow.

It's easier for them to lend to real estate investors that have that credit history, and it often depends on the amount of financing being lent.

No worries. You're doing great. And I'm still proud of you.

Jenna said...

" I love shopping."
yeah mee too:) When I'm feeling blue I shop, when I'm happy I shop.
*sigh* hard habbit to get ridd of.
So here is what I do: I try not to buy too much, I'll make myself be satisfied with the small purchase, even if it cost a lot. Window shop, even try the stuff on but find a reason why not to buy it.
Hard very hard but, yeah I still indulge in shopping not as much as I used to, using a debit card works good. I find that having more than one c/c is very helpfull. I can shop with one and find a limit so that I can pay it off at the end of the month but still have another if I feel like buying a pair of boots I must have. Now the trick is to know "your" pay off limit. Good luck honey!

shopper said...

My #1 is, I only use cash. Unless I'm buying for my kidlet or husband and think it's a possible return. AND I only add things when I get rid of something else. Also when shopping....I don't 'sale' shop because I buy stuff just because it's cheap when I do. Now I might spend more on an item, but I have alot less to deal with. I steer clear of anything I don't feel *good* in because I'll probably always feel like a dork in it. I also always wear makeup/have hair fixed when clothes shopping. I don't know why, it's better.

That's all I can think of. :)

Jenna said...

Ok so I just went against all those rules and went shopping...and I would like to know how is a girl supposed to pass up good underwear? and I mean I can't just walk by Vicki's Secret and not peek in and once I'm in hell it's a free for all.

minijonb said...

I try to not spend more money than I have... but I've broken that rule so many times it's like I've never followed it. Don't ask me about money lessons... I guess I haven't learned any.

Mike Stickel said...

About the whole "keeping a half full balance" thing. From my experience the banks have been much more willing to give me money when I've had a balance, much more than half mind you, on my cards. They don't seem to have a problem giving me more money/credit because they know they'll be making the interest on it.

On cards with no balance they currently aren't making any interest money so I can see why they would consider that a negative thing. On the other hand, if you've got a good credit score it won't matter anyway.

The things I'm trying to do are:
- put 10%+ of each paycheck on my credit card plus my minimum payment
- set aside 2 months worth of bills in one bank account that I don't touch and the rest I divide up for a) saving to buy big items and b) extra spending cash

Sounds like you're headed down the right path though. Best of luck to you and remember to keep it in check when you celebrate the fact that you're debt free in 8 months ;^)

ElRanito said...

Great advice. It really is a sad thing to see how many people's lives have been absolutely ruined by blowing through tens of thousands of dollars worth of credit and then never being able to find their way out of debt.

While, I think it is good to have credit, I wish credit card companies would show more restraint with the ridiculous amount of credit they hand out. Especially when they are giving it to people knowing full well they can not possibly have a legitmate need for (or afford to pay off) such a credit line.

I realize that these institutions make their money off interest, but it is possible to have a social conscience and still make money.

Although at the end of the day, I do strongly believe people are responsible for their own actions and that people who put themselves eye deep in a debt only have themselves to blame in the end. Bottom line... it is not free money. Don't treat it as such.

Lydia said...

Good that you're getting your finances under control. I haven't always kept to this in the past, but my basic rule is to live within my means. I do use credit cards but keep an approximate mental tally of what I'm spending so that I have a balance I can pay off each month. And if I make an extravagent purchase then I keep other spending to a minimum for a while. Not easy, but I'm happy with a new book or a film on DVD to keep me going for a while.

deanne said...

Rachel, nice work on working out a plan - it helps! It's good to hear you will be free and clear in 8 months, rather than letting it get so out of hand (as I did!) and ending up with it taking much longer.

I have a budget sheet in Excel which I use, which I'm happy to send you!

kat said...

live far away from everything so that it takes you an hour to get to target. then again that doesn't take the internet into account nor does it discuss educational debt. wheee.

congratulations and good luck.

Rachel Heather said...

Deanne - I would love whatever spread sheet you have!! Thanks a mill :)

Mike Stickel said...

If deanne or Rachel wouldn't mind I would love to take a peek at that budget spreadsheet.