You’ll find that the theme here when it comes to this blog is that I press personal responsibility. For me, that means that you are the one responsibile for how you decide to spend your money. If you cannot afford something, you should not purchase it.
The Fannie Mae/Freddie Mac situation is largely due to people taking out loans they should not have. People were given loans that they could barely pay off running a bare bones budget. It’s not just the bank’s responsibility to say “you can’t afford this”, it is yours. Some lenders (I didn’t say all, there are some honest lenders out there) don’t care if you can afford it or not, they will take their commission and sell the loan off and never have to worry about it.
It is up to you, as a purchaser, to take a hard look at your ability to pay. Give yourself some overhead to survive a disaster. Missing a payment can set off a chain-reaction that will make a bad situation even worse. You can end up with fees, penalties, and higher interest rates. If you had a difficult time paying without these extra expenses, imagine how much harder it is with them.
Bad decisions are hard to get out of. Even simple things like charging an extra $100/mo to your 15% credit card that you don’t pay off will add up in a hurry (look at 1 year worth of time)
- $100 + 15% interest = $115
- $115 balance + $100 charged + 15% interest = $247.25
- $247.25 balance + $100 charged + 15% interest = $399.34
- $399.34 balance + $100 charged + 15% interest = $574.24
- $574.24 balance + $100 charged + 15% interest = $775.37
- $775.37 balance + $100 charged + 15% interest = $1006.68
- $1006.68 balance + $100 charged + 15% interest = $1272.68
- $1272.68 balance + $100 charged + 15% interest = $1578.58
- $1578.58 balance + $100 charged + 15% interest = $1930.37
- $1930.37 balance + $100 charged + 15% interest = $2334.93
- $2334.93 balance + $100 charged + 15% interest = $2800.17
- $2800.17 balance + $100 charged + 15% interest = $3335.19
$3335.19 racked up in 12 months on only $1200 of spending! It is very easy to spend $100/mo if you’re not paying attention. You can see how expensive a mistake that could be, and the longer it goes the more expensive it gets. Compound interest is an ugly thing if it’s not on your side (though it’s another beast that can be amazing once tamed… I’ll share what I know of that soon).
Everyone needs to take a look at their situation and decide that they want to control it. If you are not committed to it, you will not succeed. It is up to you, and you alone. The bank cannot do it, the credit card company cannot do it, and the government cannot do it… only you can!
Are you ready? Keep coming back to the blog, follow the series so that you can become a dollar tamer, and find a class to learn these skills. I will share all the experience I have to help, as will many other sites out on the Internet, but only you can take control of your situation.
Posted under Spending
Written by Matt on October 3, 2008
