The other day I was about to grab lunch at work.  Lunch at work for me is a boring affair.  On Sunday evenings I run a sandwich making assembly line which churns out 5 identical turkey sandwiches for my daily noon time feedings.

On this particular day I thought about the pattern I was weaving and I realized that it has been several weeks since I’ve spent money on lunch.  My guess was that it had been since a late night vending machine run back in mid January that I’d spent even a dollar while at work.

That’s cool, I thought, it’s been several days since I’ve actually spent any money.  That’s a lot of dollars saved.

Then I laughed at the absurd nature of that commentary… a long time since I’ve spent any money, how ridiculous is that?

Understandably, I was spending less money that I could have been spending.  After all, I could be stopping at Starbucks on the way to work every morning, and I could be going out to lunch every day.  But just because I was not exploiting the most obvious of holes in our budgetary buckets does not mean I was not spending money.

What I had overlooked, and then laughed at, were the concepts of Cost Accounting in relation to my monthly budget and daily activity.  Ok, admittedly I sometimes have boring sense of humor but rarely can you have it all.

Cost Accounting, in the simplest of terms, is the recognition of an expense (or cost) as an asset or good is consumed.

For example, I may write a check for my mortgage once a month but I incur an expense equal to 1/30^th of my mortgage every day.  I may stop at the dry cleaners once a week but I recognize 20% of the expense every business day.  All of my utilities are monthly payments against daily accruals.

You get the picture.  Through this lens, the idea that I spend no money on a given day is kinda silly.  Our paradigm is to pay for such expenses on a monthly basis.  And while this approach is certainly efficient, it too is dangerous.  Dangerous in the way it separates our consumption from our spending.

Simply put, monthly payments are numbing.  Monthly payments lull us into spending more than we should for many of our daily items.  The dominant financial model becomes less about our balance sheet and more about cash flow statement.  Our short term thinking empowers an appetite to consume which then seeks to milk another payment out of any spare cash flow.  Instead we should be looking for ways to wean the monthly expenses suckling from our budgets so that we can create a long term position of wealth.

Now I’m not mad at my power company because they bill monthly, some such arrangements are unavoidable.  But, 1) I can dial back the air conditioner or heater on any given day to manage my expenses and 2) the monthly ‘payment’ represents the entire purchase price.  A car payment, on the other hand, represents a disconnect in your cash flow.  Your cash flow may support the payment but your income probably does not support the full purchase price – otherwise you’d simply pay cash after delaying the purchase for a couple short months.

So reevaluate your budget with a keen eye on your monthly outlays and how they compare against your income.  Are the expenses utility in nature – literally and figuratively – or are they nursing a large banker only too pleased to have his hand in your pie?

Shake awake the numbness and regain control over your income.  And the next time you’re tempted to think you’ve survived a day without spending any money… give it a second thought.

Photo By: dave_n_stace

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Today I’m launching a new series. Actually it is the very first installment of what I envision as an ambitious 3 series set in which I plan to cover some personal finance basics from different angles.  Call it a “Back to the Basics” bundle if you will.  I expect this series to take shape over the next couple months so stay tuned.  I hope you’ll enjoy and engage the discussion.

In some ways it’s curious that I waited so long to offer up a series on Dave Ramsey’s Baby Steps.  I suppose too, in other ways, it is obvious.  While originally inspired by Dave Ramsey, this site has hopefully developed a voice of its own.  Not deviant from Ramsey’s mission as much as unique in its own. 

In that way, if my first articles out of the gate did not include a true Baby Step breakdown – though it did  pay homage here and here – then it is no surprise that it would take some time to revisit those grounds. 

But better late than never I guess… here goes:

The first series is a breakdown – my breakdown – of Dave Ramsey’s Baby Steps and to kick off this series we’ll start at the most logical place, Step One.

Baby Step 1 – $1000 Emergency Fund

It is temptingly easy to out think the room on this one. Rebuttals interestingly enough come from dueling interpretations of the same question – Why?

• Why is it a full one thousand dollars?
• Why only one grand?

Is it simple genius when your naysayers are so evenly divided into opposing camp?  Opposing not just your plan but also each other?  Me thinks so.

Let’s take each question in turn as a means of supporting this launch point.

Why is it a full one thousand dollars?

The lyrical refrain on this complaint typically follows… I’m trying to get out of debt here and $1000 can go a long way towards that end.

True.  A grand is a good start and might actually help knock out some of your smaller debts.  But the trick about being in a hole is to learn to stop digging.  Without some reserve your only option when the air conditioner, car, washer, hot water heater, dryer, stove, or whatever else breaks down – and it will – is to turn to debt to bail you out.

With $1000 on standby, you can let cash – your cash – bail you out.

The lesson here is subtle but profound.  You start to learn; start to teach yourself; that YOU are your bailout and not some silly plastic card.

Why only one grand?

The dueling banjo then asks why isn’t the reserve even more?  The reasonable question in response is “are you expecting an emergency?”.  Is the wife pregnant, are there layoffs at the plant, is there a specific and known emergency lurking just beyond the bend.  If so, then the Baby Steps are not for you.  You’re in an emergency now and need to stash cash towards that end.

If that’s not the case, and in most instances it is not.  Then the slight nervousness you feel is now called your motivation.  You want to shed your debt with a quickness.  You want to recognize your debt for what it really is – RISK.  Reducing debt equates to reducing risk.

Sitting on a pile of cash next to a hole of debt represents a failure in connecting your financial dots.  By experiencing that tinge of concern as you start to fill that hole from your pile, you are actually activating something deep with you.  You’ll want to fill the hole faster and you’ll appreciate that the next time you’re sitting on a pile of cash, it’ll really be your cash.

And so between the differing objections is the perfect middle ground.  $1000 represents an amount better than most nagging household “emergencies” but is not enough to keep the world at bay for any significant length of time.  Rather, it is quick and it is temporary and it is Baby Step One.

Stay tuned for upcoming installments in this series:

Baby Step 2 – Pay-Off Debt Smallest Balance to Largest Using the Debt Snowball

Baby Step 3 – Boost the Emergency Fund to 3-6 Months of Household Expenses

Baby Step 4 – 15% Earnings Invested for Retirement

Baby Step 5 – Start Savings for Your Child’s College Education (as applicable)

Baby Step 6 – Pay-Off the House

Baby Step 7 – Save, Invest, and Get Rich

Many other skilled and talented writers have dedicated time to dissecting Dave Ramsey’s Baby Steps and I want to share their work for your review as well.  While I certainly hope you’ve enjoyed my treatment of the material, I’m confident you’ll round out your understanding and insights by also spending time with the interpretations of others.

Read, Enjoy, Comment, Subscribe!

Bible Money Matters – step 1 

Enemy of Debt – step 1

 Gather Little By Little – step 1

 No Credit Needed – step 1

 Dave Ramsey – step 1

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A read an article the other day from a pretty well respected icon in the blogging game.  Leo Babauta over at Zen Habits has about 160,000 readers – an insane number when you’ve been doing this long enough to know what that really means.

His article was about changing habits and the easiest way we too often derail our efforts to change and improve.

The idea was as simple as it gets.  So simple in fact, that it should not require an article at all, much less a follow-up article espousing his thesis.

Yet it was at once genius and worthy of widespread proclamation.

His culprit as the worst antagonist against our habit forming ideals?  In his wise words, “Not doing the habit”.

And there it is, like a 2×4 in the forehead.  Well of course it’s the biggest obstacle, but… wait for it…. BUT YEAH, it really is my single barrier.

I wish I was able to get up earlier in the morning, but sleeping in until 10 every morning is what I do.

I wish I could drop 20lbs but this restaurant has the best cheeseburgers and fries.

 I want to get out of debt this year but I don’t know where all my money goes.

I want my children to behave better but I can’t bring myself to discipline them.

I wish had gotten that promotion but I begin packing my bags to leave everyday at 4:30.

Tell me when to stop.

This is our life and this is our time.  There are no ‘do-overs’, there is no ‘next time’.  If we want something, we must bend our will in its direction.  We must take action against that objective.  “Tomorrow” will never come, we must start today.

That speaks to the genius behind Nike’s “Just Do It” campaign.  Forget all else and just do that which you aspire to.

One of my favorite quotes I pulled from a Fortune magazine years ago, “a year from now you’ll wish you had started today”.  Human nature being what it is, perhaps truer words have never been spoken.

So consider this your wake up call.  Look in the mirror and decide what you’d like to change, what habits you’d like to establish and then get about the business of getting it done.

Thanks Leo, I needed the kick in the pants.

Photo By: amycaek

Introduction

March is here already – amazing how time flies.  Yet 2010 is shaping up to be a fantastic year. 

I am continuing to lag behind on some of my goals – I’ve again conquered only 3 of my 5 targets for the month but I did bang out one of the overdue items from January.  I’ll count that as progress as my overall % completion has increased.

 How are you doing and how are you altering your course to ensure a winning path?  Let me know by commenting below.

FaceBook Announcement:

Many of you are active on Facebook.  If that’s you then I ask that you please consider joining the DoYouDaveRamsey fan page I just recently created on Facebook. 

Along the same lines, I’ve also added a “FB-Share” badge to the top right of each article.  This will help you share with friends the articles that you particularly enjoy.

Progress Recap

February Goals

2010 Year to Date Results

March Goals

Feel free to add your goals in the comment fields below.  If there’s enough interest and traction, we may dedicate articles to your progress as well.

Also, please comment on your experience with similar goals or even your general reactions to my goals and progress.

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Your Turn – If you enjoyed this article, I would personally appreciate it if you would consider commenting below and/or subscribing to our Free Updates via email or RSS updates.  Thanks!

A couple weeks ago I was talking with a friend who was leaving her job.  It was a good job with a good employer but it was time to move on.  I spoke with her as she was navigating the decision making process and then again on her last day. 

 Leaving a job – a real career-type job – is not as easy as it sounds.  I know from experience.  But I was happy (and a little relieved) at her response – “I feel so happy and free”, was her proclamation and in that moment so was I.

I had worked for that same employer for over 13 years, a lifetime ago it now seems.  On my last day I met a friend for lunch.  I had completed the ‘administrative check-out’ process (code for returning laptops and signing disclosure agreements, and other HR related activities) in the morning and by mid day I was free.

I arrived at our destination early and sat outside.  It was unseasonably warm for a January 12^th (circa 2009).  I laughed out loud when it struck me.  I was now unemployed.  I was absolutely free and un-tethered and it was an amazing feeling.

Sure I could have been terrified and I understand where under other circumstances I would be.  But I had taken care of my business and had a decent buyout which afforded me a comfortable runway. 

In that moment, I felt about as free as I ever have as an adult.

So when my friend made her proclamation of freedom, it resonated well with me.  More than a hopeful thought or wish, it awoke an echo from within.

Now, I have my feet planted firmly in reality and I do enjoy my current job and expect to be happy along this path for some time to come, but I’m also capable of carrying a dream. 

And more than just about anything else, my dream is to experience that feeling of freedom again.  Not when I’m a 75 year old retiree and free to do whatever is left that I’m capable of doing, but while I’m still young enough to know that I’m not yet finished, while I’m still capable of starting now what I’ve been placed here to do.

The last time I had that feeling, I knew I had a limited window to exercise it and soon thereafter this site was birthed.  BANG or whimper is still being decided I suppose.  But while this site has not afforded me an endless runway, it has elevated my line of sight and allowed me to expand my vision and dream for a new reality. 

The next time I feel that sense of freedom, I want it to be without constraint and I’m increasingly led to believe that the budgeting and personal accountability and goal setting and introspection I espouse in this forum are somehow both the path to and message of that dream.  Perhaps my membership will soar and publishers will knock down my door with huge book advances or perhaps I’ll continue modestly crafting content and eliminating debt until I can transition into another career… to become say, a high school teacher with a homemade curriculum and permission to coach a little football on the side.

Who really knows what lies around the next bend, but I know a dream for freedom has stirred within me and I look forward to figuring out how to unleash it.

If this message resonates with you, I ask that you consider sharing this article (and site) with someone.  Who knows, YOU might be the tipping point in helping unleash the growth potential of this site, which in turn could help me set my dream free!

Photo By: Lilli Bellule

If you happen to follow my rare personal commentaries on Facebook you’ll notice that the title for today’s article matches with the headline I broadcasted Saturday morning.  I’m being repetitive because I’m twice as convinced in the truthfulness of the statement.

For starters, who is David Allen?  Well, I suppose many titles would fit, but I’d define him as a personal productivity guru.  His first book Getting Things Done: The Art of Stress-Free Productivity was released in 2001 and remains a best seller and fuels worldwide demand for his workshops and personal coaching/consulting.  In short, he has established an industry around a simple and profound approach to getting things done – or GTD in the vernacular.

Allen’s concepts while easy to understand are profound in their implementation and application.  By no means am I an expert.  Barely a novice is where I’d start my self assessment.  However, as I listen more and more to his ideas and even start to deploy them in my day-to-day… wow, I’m impressed.

I’m only scratching the surface here, but Allen’s thesis is to clear the mind.  He often says that the mind is a great place to have an idea but a horrible place to store that idea.  He elaborates by suggesting that a task on the mind will consume more thought and mental energy than it deserves.  Rather, those thoughts and ideas and action items should all be captured and processed.

Items determined to require more than 3-5 discreet actions should be logged as projects and each project should reflect a ‘next action’ required to advance the effort.

Actions should then be organized into what he calls ‘contexts’ which speak to when and where they should be completed.  It becomes and activity matrix really, which ‘next steps’ can be performed while making phone calls or online or while out running errands? 

Lists and folders and note pads and pens are the tools that make this system work… and work it does.

For the last several years I’ve deployed parts of his approach without being aware of his larger premise.  For years, every January, I’ve labeled a file folder as “Year XXXX Tax Documents”.  Throughout the year when I collect a document that might influence my taxes – receipts, W-2s, charitable contribution statements – I simply file it away. 

Without realizing it, I had created a context and was filing appropriately.

Allen takes my simple illustration and blows it out times ten.  Everywhere is a context and everything is a project with a discreet next step.  The ubiquitous ‘To-Do’ list then is no longer filled with procrastination begging landmines like “eat the elephant” but contains clearly defined actionable next steps like “take bite” and “chew”.

So why then did I FB “David Allen=Genius” on Saturday and why am I trumpeting it again today? 

The answer – to me – is clear.

On Friday I cleared my schedule and spent several hours identifying all of my projects and open actions.  I pulled from my To-Do list, from actions starred in my notebooks, from phone messages, from actions listed on my white board, and from too many previously ignored emails.

While I didn’t do anything, I organized next steps and pictures of completion for each of 20+ individual projects.  After nearly two months of 60 hour work weeks, I left the office early and with a clear mind.  As a measure of success, Friday night I didn’t bolt up in bed with heartburn AND an urgent thought of an undone work item… and another… and another… and another.  Rather, I slept through the night and the next morning actually remembered parts of my dreams for the first time in too long.

I had no less work to do – probably even more – but I had a true literal handle on the work required.  On Monday morning I was able to pick up any project folder and immediately take action towards its resolution.

To make matters better – do you ever hear that expression – I did the same thing Sunday afternoon for my personal/home projects, about 40 individual efforts.  It represents a ton of activity and finding time to execute against all of them will remain a challenge, but I have more clarity as to my outcomes than I’ve had in a while.  Rather than a mind cluttered by so many concurrent games on pong, I have a mind that is now clear and freed from having to remember such that it can creatively engage.

I like this feeling and have scheduled time with myself to re-establish this baseline each week – called the weekly review by Allen if you’re wondering.  This will keep me honest with my activity and organized against my objectives and mentally free to wander and ponder.

Admittedly I’ve only unpacked the small boxes relative to David Allen’s larger inventory of concepts and principles.  While I hope to engage elements of this approach again in the future as I learn and benefit from them, I don’t want your learning curve to rely on me.  Please visit his site for more information, free newsletters, free podcasts, and free downloadable worksheets and articles.

If you’re interested in any of his books, here are links to help streamline your review and purchase decisions.

Getting Things Done: The Art of Stress-Free Productivity

Ready for Anything: 52 Productivity Principles for Work and Life

Making It All Work: Winning at the Game of Work and the Business of Life

Photo By: Joe Thorn

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Being homeless is by no stretch a tragedy and while it is not a cause I actively combat, it never fails to illicit a reaction in my mind if not my heart. 

In Canterbury, England the youthfulness of the homeless population is shocking, the true stench of the homeless population surrounding Philadelphia’s City Hall will turn your stomach, and the aggressive and entitled nature of the panhandlers in New York City will boil your blood.

Be it anger or despair or sorrow or even gratitude in my own good fortune, my responses have always been rooted in the misfortune – self inflicted or not – of others.  Never has it been, on its own merit, a positive response.  That is, until I encountered perhaps the smartest homeless man in the world while visiting Key West a few years ago.

Key West?  No further explanation is required, this guy is ahead of the game.  Face, if I had no home or societal tether, a urine soaked park bench in Philly’s City Center would not be my first choice.  Nor would a back alley or crowded sidewalk in the NYC.  Without steady shelter, a warmer climate just makes sense.  It’s what birds do, there is a natural model.

However, the genius behind this homeless man’s plan is in his day to day approach.  He has staked out a popular tourist and photo-op location and in a very friendly and engaging manner offers to take the picture every couple or family wants to capture on their camera – them standing next to the attraction.  Enough curious ‘patrons’ will ask questions that enable him to humbly share that he’s homeless which creates an undercurrent of conversation and voila, the tips come rolling in.

Counting my 2 bucks, he probably raked in 8 or 10 dollars in the 20 minutes we were there.

Now I’m not naïve enough to think that is could not be a scam.  Enough investigative news teams have followed panhandlers from their corner to nice cars and homes and too many of New York’s wheel chaired elderly change beggers have simply been ‘checked out’ of hospitals and institutions by lazy relatives trying to turn a quick buck.  So even if this dude isn’t exactly living under a pier he is effectively exchanging a valued service for the tips he collects – a lesson from which many workers relying on our tips could learn.

And so my point – do I have one today – is that we should each have a plan.  Mindlessly wandering through our days without a plan propelling us towards a positive and improved outcome is polite society’s equivalent of a well pissed park bench.  Meanwhile, working with a goal, an objective, a plan to win is rewarding and much admired, whether you’re the director of your department or the best paid amateur photographer in Key West.

Photo By: illflux

Your Turn – If you enjoyed this article, I would personally appreciate it if you would consider commenting below and/or subscribing to our Free Updates via email or RSS updates.  Thanks!

A couple weeks ago I was exchanging emails with a friend – and reader – and during the exchange he shared from a discussion he was having with a co-worker about tax deductible debt – think mortgage.  It seems that his co-worker – a CFO, trained in the ways of finance – was in favor of maintaining a mortgage for the purposes of the tax deduction rather than paying off the debt as quickly as possible.

I thought it was an interesting topic and discussion so I wanted to share it with you here today.

Here’s the question/discussion as presented:

…as you know I have an accounting background and I got into a great debate with my CFO at work about paying off tax deductible debt vs. managing that debt and taking advantage of the write-off, (a mortgage is a great example).  I know that DR would say that most should get rid of the debt because they can’t manage it but if you can, does he still want you to pay it off?  My example is my home mortgage which is close to being paid off.  I’m watching my tax deduction go away and I’m wondering if I should instead be leveraging that option.  Let me know what you think.”

Here’s my response:

As for deductible interest, I say it’s nice while you have it but that it’s not a reason to keep it around.  Assuming a 25% tax bracket for the sake of the math… if you have an 8% loan you can deduct 25% of the interest… you effectively lower your rate to 6%.  Or stated from the other end, for every $1000 of interest you pay, you save $250 in taxes.  You’re spending a grand to save $250.  In that case, why not give $1000 to charity and have the same tax deduction?

The former example is probably what the CFO is talking about… using the tax deduction to lower your effective interest rate.  Again, just using the numbers above for round math, if you can lower 8% to 6% then you might be able to generate an arbitrage situation.  On some levels that makes sense but it doesn’t account for either the income tax you’ll pay on the gain nor the risk of having the mortgage.  In accounting or finance terms, the CFO is not applying a beta factor.

Consider the last 18 months as an example.  If you borrowed $100k from your home to put into the stock market you’d have a mess on your hands.  The market went in half while home values tanked but you’d still have the $100k in debt against your home.  In that case, you’re screwed on both ends.  However, if you didn’t borrow against your home you’re likely set.  Paying yourself a mortgage payment once the house is paid off will make you very wealthy very quickly. 

I’ll admit that I’m pretty vanilla in my approach here.  I’m opposed to debt and am happy to shed it when I can.  However, I understand – even if I don’t fully embrace – the notion that some debt is better than other.  I suppose I’d rather have a 0% credit card than a payday loan, but I’d really rather have neither.

In the example above, the CFO is using some sound ideas to try to create an arbitrage situation – think something for nothing if you’re not familiar with the term.  If my rate is 8% and I can earn 10% then I’m making money for free – assuming no other variable.  Similarly, if my rate is 8% and I can lower it to 6% with a 25% tax deduction on the interest, I can then drop my earning rate requirement to 9% and still make an even larger profit on the spread.  It, tugging my ear lobe for a charades-like effect, *sounds like* a no brainer.  But the catch is that there are other variables and to ignore them is folly.

For starters, the tax model you use for your favor does have a backlash.  Borrowing from the above, your 3% spread is subject to taxes.  Using the same 25% tax rate lowers your spread to just over 2%.  In additional, there are risks at play.  Your investment could tank which would swiftly erode your small spread, your income (job) could wilt which hampers you ability to service the debt, or life could strike in the way of health issues, a new child, or pricey repairs which also impede you ability to service debt.

Sometimes it is easy to out think a situation.  Sometimes we like to engineer complex solutions because we can rather than because the situation demands it.  Sometimes we have to “say it out load” and recognize that often true elegance is found in a simplified solution.  Sometimes we simply need to control those things which are within our reach.

And as I shared above, the last 18 months should serve as a wake-up call in that regard.  My current employment, the value of my home, and the stock market are all well out of my control and the more complicated my solution the more likely I am to rely on some or all of those factors to win.  However, a paid for home may not be elaborate but it is both in my control and largely insulated from those things outside my influence.

In more than one way, that’s a safe place to live.

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Today marks DoYouDaveRamsey.com’s one year anniversary!  This is the milestone I’ve been targeting from the start.  I marked time by writing about my 1 month and 6 month anniversaries, but the 1 year mark was the unattainable goal in my mind.

I say unattainable because writing to a recurring deadline is something of a challenge.  At least it has been at times for me in this busy year of transition.  But it has been a wonderful journey and I’ve certainly enjoyed the ride.

Most blogs come and go such that simply making it to this milestone is unique.  That’s another reason I once believed this milestone would not be reached – or at least not reached with an uninterrupted production schedule.

With that, I must quickly move to say thanks to those who have been reading and commenting along the way.  I sometimes wonder if I don’t enjoy engaging the comments more than writing the original articles.  I certainly recall a couple instances where my comment responses were longer than the original article and those are fun and engaging moments… so please continue to comment or start commenting if you have not done so already.

If you’ve only read my words on Facebook, hop over and check out the full site.

Having hit this milestone and taking a moment to look back, I want to set my sites on the future.  As we’ve already started to see in my monthly goal posts – January and February – I have at least hinted towards, if not demonstrated, a full slate of activity for this year.

It is not lost on me the irony or apparent conflicts that exist in my aggressive goals.  Time spent pursuing separate writing projects may be at odds with my desire to grow the site’s footprint.  That is a balancing act I’ll enjoy managing and is likely a topic I’ll engage as the next months unfold.

As a published heads up, there may be instances over the next year in which I’ll need to scale down my twice weekly schedule to accommodate other initiatives.  I don’t anticipate ever failing to deliver at least one article a week but I hope to limit the need for even that scale back.  In any event, I’ll keep you current with my projects and projections in the monthly goal summaries.

So with that as context, let me transition back to a more positive topic – YOU.

For those reading along, I like to think that you play a key role in this writing journey and I’d like for it to be a more active role as well.  Please let me know what you’ve enjoyed most and least about my efforts thus far.  On what topics would you like to see me spend more time?  On what topics would you like to see less time?  What questions or topics would you have me explore that I’ve not yet commented upon?

In the next year I do want to grow my readership and traffic, and I can think of no better way to start than to serve well those following faithfully today.

THANKS!

With an acknowledged nod towards self promotion, here’s a list of my favorite posts from each of the past 12 months.  I hope you’ll take a moment to comment as to your favorites as well.

February 2009 – Focus, On What Is Yours

March 2009 – Some Answers Are Obvious

April 2009 – Debt Is Squalor

May 2009 – I Once Met A Man In A Sauna

June 2009 – Does Your Money Even Like You

July 2009 – Plant Your Financial Tree

August 2009 – Car Lease Saves Budget…?

September 2009 – I Love Football

October 2009 – Happy Recession Anniversary

November 2009 – Mandatory Healthcare Reform – Part 2

December 2009 – Money Buys Us Options

January 2010 – Financial Infidelity

 Photo By: perfectbound

Your Turn – If you enjoyed this article, I would personally appreciate it if you would consider commenting below and/or subscribing to our Free Updates via email or RSS updates.  Thanks!

I received a letter in the mail the other day that was equal parts shocking and appalling… and sadly, genius.

Discover, a credit card I’ve held for a couple years and last used nearly that long ago, sent a letter offering me $500 and encouraging me to rack up massive amounts of debt in the process.

The hook was obvious.  Who doesn’t want five crisp bills?  But the catch was brazen and laughable and dangerous.  Simply notify Discover that you want to make them your credit card of choice and then proceed to spend $2000 a month on the card each month for the next four months.  Presumably the first step is optional

I actually found myself insulted at the mere thought of such an offer.  I suppose that reaction may sound elitist but I’ll count that as a compliment when compared to the brain waves engaged by those eager to fall prey.

That’s $8000 in new credit card debt in exchange for $500 in return – an amount that would be consumed by the interest charges nearly as quickly as it would be “earned”.

Now forget for a moment that we’re still in a slow recovery from an economic swoon brought on my too much debt… let that sink in for a moment… but actually planning to incur eight grand in plastic debt before summer hits its full stride is a losing plan all around.

As for those willing to game such an offer, I generally laugh at your hubris.  Personal finance is not a math problem.  Credit cards and their purveyors would be tame beasts and not nearly so widely marketed were logic a principle tenant in their usage.

Consider that no one signs up for such an offer without some hope or idea of benefitting.  That alone puts you in questionable company. 

But suppose you were able to navigate the offer, including the small print and specialized restrictions and terms of the deal.  Through it all you were able to pay off each balance and incur zero interest charges.  In this unlikely scenario you would have managed to prove 2 things – 1) you are the rare exception to the rule and not the true object of Discover’s snare, and 2) you likely have a healthy cash flow position such that jumping through such hoops for a couple hundred bucks should generally not be worth your hassle.

At least that’s my take and why I’ll rail against such offers every time they cross my path.

But that’s why Baskin Robbins offers 31 flavors of ice cream.  There’s a taste for every taste, and more than most will make Discover fat.

Photo By: bitzcelt

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