PF BS: "Do What Works For You"

Our first installment of PF BS was a little easier to sugar coat. This one, I'm pretty sure, is the ultimate cop out of personal finance. It usually comes up after a bit of debate between differing opinions. Or maybe a heated exchange. A crutch, a cop-out - call it what you want.

"I think you should just do what works for you"
  • "Should I really pay off my 0% interest debt when I'm getting 4% on my money market?"
  • "Credit cards aren't bad - I like mine and I think it likes me"
  • "I think budgeting is a waste of time and cash is a pain to carry."

Sure, sure, "I think you should just do what works for you".

Or maybe not.

I'm callin' BS.

Again, caveat time: What does 'work' for you?

Just because you've never carried a balance on your sweet, sweet rewards credit card doesn't mean it's working for you. The Mrs. never carried a balance over 8 years - even during college. Still, once married, we were definitely overspending on it. Not to the point where we couldn't pay, but it was money we definitely didn't need to spend. Not workin'.

Borrowing to invest only seems like it's working when you don't understand what's going on. If that investment isn't returning 6% or more, it likely isn't covering taxes and inflation while returning an amount worth the hassle - not to mention covering the finance charges on the loan. If it's returning more than 6%, then it's likely risky enough that a large chunk of it may disappear on you and not be there to repay the loan when due. Not that the stock market or real estate ever takes a sharp nose dive....

So how do I know when something is working for me?
  1. It has a positive affect on your net worth. Home equity loans, student loans, credit card debt, and whatever other 'good debt' you've talked yourself into all takes you in the opposite direction. Buying a brand new car vs. a slightly used one will at least make the purchase less of a hit. Saving money - for purchases, retirement, or college - take us to where we want to go.
  2. It encourages good behavior / discourages bad behavior. Living in the moment, impulse shopping - bad. Having a handle on your spending, living on less than you make - good. It has been clinically proven that spending cash neurologically registers in the brain as pain. While spending on plastic does not. And those fancy new key fobs almost don't register at all.
  3. You understand it. I mean really, really understand it. Unless you're ready every fine-print page of your card holder agreement and you understand it, then your credit card would not fall into this one. By the way, many lawyers have a difficult time deciphering all the legalese in card holder agreements. Also, judging by the fact that several comprehensive pieces of federal legislation are required to govern it, it's highly unlikely the the majority of cardholders understand what they have signed up for.
So before jumping head first into a financial decision, ask yourself:
  1. How will this affect me in the long-run? How likely is this to work out in my favor?
  2. What kind of behavior is this likely to encourage? Am I looking for an easy way out?
  3. Do I fully understand the ups and downs of this? No, really, do I?

"It is the blessing of the Lord that makes rich, And He adds no sorrow to it."
-Proverbs 10:22


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