The Seven Most Scary Money Traps

This week we’ve watched a Halloween movie with my family, all of a sudden my son asked me: Why do you like to watch horror movies Papa? I had to think for quite some time, but then I replied: Fear – if done right – can be fun!

And of course he asked again: How?

The Upside of Fear

I explained to him that fear can be an exciting and healthy emotion to get exposed to, just think of how we enjoy going on roller coasters, how you can feel excitement when you can take a controlled risk in life and how we like the feeling when Haloween comes closer.

Also, if you don’t get comfortable with exposing yourself to something new every once in a while, your live will get boring and simply flush by at the speed of light.

However, when it comes to money, be very, very afraid of not being fearful for the following seven most scary money mistakes!

As it’s Halloween today, let’s explore the seven most scary money traps that could get hold of you!

Be very, very afraid!

1. Gambling and Playing the Lottery

Did you know more than 95 percent of gamblers regularly lose money instead of winning? It’s different if you do it once or twice for fun, but hey, some people are addicted to gamble or playing the lottery on a regular basis. Some call gambling and playing the lottery the “poor mans’ tax”.

If you play regularly, you’re most certainly throwing money away that could have been invested or used to reduce your debt otherwise. You’re putting your own retirement or you childrens’ future at stake here.

“Gambling is a way of buying hope on credit.”

Gamblers and lottery ticket buyers pay with their money to allow themselves to fantasise about a better future, regularly. Click here to read more about this scary behaviour.

2. Not Having an Emergency Fund or Plan

One of the scariest facts in personal finance is that there are many people out there that don’t even have enough cash aside to pay for a simple emergency. Would you be ready to pay $500 out of pocket if something happens to you or your family today?

Not having an emergency fund or plan is very often just the starting point for more scary money mistakes and problems. If you don’t have 3-6 months of expenses in cash or if you have assets a flexible loan line against your asset base, you might soon be forced to pay bills late or take out scary cash advance loans to simply go about your life. Avoid that!

“There’s always something coming in a few months that will cost money. Be prepared or be fearful!”

Save up for emergencies now if you haven’t. Your parents are not your emergency fund. Your children are not your retirement fund. Most people don’t plan to fail, but they fail to plan. Start now, build your emergency fund or draft a plan.

3. Paying Bills too Late

Once you start paying your bills late it might set-off a whole chain reaction towards creepy financial situations. First, you will be receiving reminders, then additional fees will be added and ultimately not paying in time will affect your credit score and more while you end up paying a multiple of what settling the bills would have cost you in the first place.

Not paying your bills or paying them late is like letting an overdraft bank account accrue. It will put you in a situation of more financial stress and you end up losing your energy, money and credit score.

Organize your cash flows well, get a budget, reduce expenses if necessary and handle your monthly money obligation diligently and with extra care.

I know this might be scary, but now please go kill your bills as they come!

…or you don’t have a future.

4. Debt Against Depreciating Collateral

There are many things you can borrow money against. The worst kind of debt is borrowing against depreciating or highly speculative assets. The most common example here is the car loan. You get a new car handed to you, but also the obligation to pay for it over time while some middle man will suck scary high interest rates out of your cash-flows, like a vampire. The very moment you drive your brand-new car away from the car dealership, you instantly lose 20% of the sum involved. That 20% is also more or less what a car loan will cost you, but not one off, no, annually. And there are even some people that can’t afford to hold such a loan over time and might be forced to surrender the car but keep sitting on some leftover loans!

“Don’t buy things you can’t afford with money you don’t have to impress people you don’t even know.”

Avoid going into debt for depreciating “assets”. Instead, if you need to purchase depreciating items save up and pay in cash and invest your remaining cash into appreciating assets instead. Debt on depreciating assets is “the walking debt”!

5. Debt Against No Assets

Yes, more scary debt!

Especially at Halloween: Bury the bad debt!

People got used to have access to instant cash injections to finance whatever they need to pay. The vast majority of almost 70% actually of short term borrowers use such loans to pre-fund recurring expenses like food or housing.

Such loans can be called predatory, the lender is the predator, you are the prey!

While a mortgage is debt against a collateral, your home, the origin of the word mortgage is highly interesting. Did you know it comes from the French language? If translated directly, you could call a mortgage a death-pledge!

You got to pay it back until you die.

Let that sink in.

Instead of letting debt putting you under, burry bad debt and let it never come to life again. Stop giving credit card debt a second chance. Avoid payday loans like they are the plague. Push student debt down to where it belongs.

6 feet under.

6. Buying “Rent-to-Own” Products

This most subtle form of debt is the latest trick to make you consume more stuff you can’t afford. In certain markets you won’t be seeing a fancy TV listed for it’s actual price of $1,000 (pardon, $999) anymore, instead it’ll be sold for “only $99 per month” (payable over 24 months) which just sounds so much more affordable and actually less scary. Or not?

Wait a moment!

Now imagine some folks acquiring their beds, massage chairs, fridges, washing machines, cellphones and much more through such schemes… they won’t have any capacity to actually build wealth anymore. At all!

Don’t let the rent-to-own product offers get hold of you. Ever!

They are terrifying wealth killers!

7. Lifestyle Creep

One of the creepiest aspects in personal finance is to fall for lifestyle creep…

It usually goes like this: You get a raise, have more money, believe you need to afford more and spend more since you’ve deserved it, then shortly after run out of money again which will let you work harder in order to aim for the next raise or promotion again after which the whole bloody circle just starts again. This is the hamster wheel trap. It’s socially accepted and thought to be “normal”. If you want a life different from normal, you got to avoid falling into this super scary trap.

Avoid keeping up with or even taking over the Joneses. Just look at them. Walking aimlessly through their lives spinning the hamster wheel.

You don’t need to get a new car simply because you got promoted, you don’t need to eat out all the time and your wardrobe might already be good enough.

Act your wage!

Or even better, act below your wage.

Conclusion

Fear and Greed are natural parts of our life. We always strive for more and are afraid of losing what we already have.

Understand how this world works.

If you want to live life differently than others, don’t fall for normal.

Normal is broke.

Normal is scary.

The scary truth is: You will either learn to manage money or the lack of it will be managing you. But don’t be scared to handle your money: Scared money will never make more money!

Trust I could scare you today, even if just a little.

Happy scary Halloween!

Matt

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