And if you’re focused on financial independence, you know one big step in that direction is to save as much as you can. It’s especially important to avoid incurring debt to fund your spending as it’s hard to save when you’re paying interest expense. But unfortunately, while many of you may realize this, it’s obvious that most people do not.
There’s an article in today’s Wall Street Journal that discusses how credit card debt is poised to break the $1 trillion mark this year. This is the highest level since the record-setting levels of 2007, according to the article.
Add more than $8.3 trillion in home mortgage debt, $1.2 trillion in student loan debt, and an additional $1 trillion in auto-loan debt, and you get a total of $11.5 trillion in personal debt.
At the same time, another article also in today’s edition, describes how US corporate debt levels grew to $6.6 trillion last year.
And, with the US federal debt currently greater than $19.4 trillion, that brings us to a grand total of $37.5 trillion in debt. With a US population of around 322.8 million, that equates to more than $116,000 in debt per person.
Apparently, whether you’re an individual, a company, or the federal government, using debt to fund spending has become the American way.
People Want to Buy More and More
On the one hand, it’s unbelievable that the US and it’s population has incurred so much debt, but when you realize how our country has made it so easy to spend and borrow to fund that spending, it shouldn’t be a surprise.
There was a time in the US when you had to use cash to pay for everything – including homes and cars. Credit cards didn’t exist. Back then, it was difficult to live beyond your means. But now, it’s no longer the case.
It’s rather simple actually. Merchants figured out that people have an insatiable desire to acquire things, especially when encouraged to do so with high quality promotional efforts. The challenge isn’t getting people to buy, it’s finding creative ways to get them to pay.
If you have ever visited Las Vegas, you know how they make it easy to spend your money. Whether in the casino, a show, or another attraction, there is never a shortage of merchants ready, willing, and very eager to take your money. And they make it simple and easy to spend.
Others have figured this out as well.
Be Aware of Traps that Make it Easy to Spend
While trying to save your money, you may be lured by merchants into spending more than you intend. Over the years, merchants have created “traps” to make it easy to spend. You think you’re getting a good deal, but in reality, you’re buying something you don’t need or don’t want.
Here are a few of those traps to be on the lookout for:
Multiple payment methods. No longer do you need cash, check, or credit to pay for things. Now you can use your phone, PayPal, temporary charge cards, and more. Merchants know that the easier they make it for you to spend your money, the more likely you are to spend it.
Easy return policies. It used to be, in order to return an item, you needed the receipt. The item had to be unopened. Essentially, the seller didn’t want you to return an item and they made it difficult to do so. Now, many places have a no questions asked return policy. You bring it back, they will refund your money. Places like Costco even accept large screen televisions used for one day to watch the Super Bowl, even though they know that’s what happened. The less risky you deem a purchase, the more comfortable you are making it.
Buy one, get one half off. This trap has been around for a long time. It sounds like a good deal. Feels like you’re paying half (or maybe 75%) of the regular price. But that only makes sense if you really need two of the item. Otherwise, you’re paying a 50% premium.
Different model numbers at different stores. Have you ever noticed that often when comparison shopping, you can’t find the exact same model at different stores. That’s intentional and it makes comparing two similar items difficult. You’ll also see different items bundled together in different stores.
One-day only sales. Nothing irritates me more than high-pressure sales. If you don’t buy something today, it will cost you more tomorrow. I would rather wait a few days to think about whether I really need or want something even if I pay more for it.
Special shopping days. Black Friday, Cyber Monday, the day after Christmas. These days are so heavily promoted, they make you feel like an idiot if you aren’t out shopping. And you may find discounted items, but not everything. And even so, do you really need all those heavily-discounted products, or are you buying them just because they look good?
Volume discounts. My father likes to tell the story about how his grandfather came home one day having bought 144 pairs of shoe soles. He got them a great discount because he bought so many. Now you have to admire a guy who resoles his own shoes, but are you realistically going to ever use 144 soles? My great-grandfather had stumbled upon the future Costco business model. Buy in bulk and get everything much cheaper.
Subscription services. The other day I had work done on my air conditioner. Rather than paying for the service call, the company offers a membership subscription service. Pay a monthly fee and service calls are free, parts are discounted, and you get preferential service times. What I found interesting was that they charge more if you pay for a year upfront rather than monthly. Their reasoning is that if people are forced to pay a larger once per year fee, when renewing, they may think twice about it. If the fee is an automatic recurring monthly charge, it goes on indefinitely and they start to not even notice.
Online shopping. This is probably the biggest convenience factor of them all. Instead of heading to the store, all you need is your phone, tablet, PC, or just your voice (check out the Amazon Echo). Add in free shipping, free returns and what’s not to love.
If you are trying to save money, it’s easy to get lured into each of these traps and spend more than you intended. Just remember, if it’s easy to spend money, you will spend more money.
What are some other traps that make it easy to spend money?