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Welcome To The Course, Mastering Money The S.M.A.R.T Way Without Working Any Harder! 

Lesson #2

SPEND WISELY AND AVOID EXPENSIVE CONSUMER DEBT

In this module, we are going to learn how to spend wisely and avoid consumer debt.

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery”.

Charles Dickens, David Copperfield

Spending wisely means living within your budget, buying the things you really need and not indiscriminately shopping for things you want.

For instance, you need basic necessities such as food, utilities and a roof over your head, but do you really need Netflix? 

Consumer debt

“Borrowing money at 18% to buy consumer goods is dumb”

Warren Buffett

The legendary investor Warren Buffett, whose Berkshire Hathaway company owns banks and credit card companies, actually warned investors against carrying a credit card balance!

Millions of Brits and Americans carry a permanent balance on their credit card – before the covid crisis, 110 million American had credit card debt paying a crippling average rate of 16%.

“You can’t go through life borrowing money at those rates and be better off,” Buffett added.

Buffett said that an old friend of his who came into some money and asked his advice on what to do with it. He asked if she had credit card debt. She said she did, and was paying an interest rate of about 18%.

“If I owed any money at 18%, the first thing I’d do with any money I had would be to pay it off,” Buffett advised her. 

By paying off the balance, she would save more money on interest than any return she could earn by investing the money, whether in the stock market or in real estate or elsewhere, Buffett advised. He added, “I don’t know how to make 18%”.

If one of the greatest investors of all time admits that he cannot make more than the rate charged on a credit card, what makes you think you can? 

You should still keep some money aside for a rainy day, but pay down expensive debt rather than keep cash in the bank earning less than 1% and don’t buy stuff which go down in value using credits cards. 

How much are you paying each month on your credit card bill?

Chances are, you are paying the minimum amount required. 

Paying the ‘minimum payment’ on your card balance will take between 10 and 20 years to clear the debt depending on the interest rate charged?

This practice is highly profitable for the card companies and extremely costly for consumers. UK card companies are now required to warn customers about the cost of paying off the minimum amount required. 

Check your credit card statement now. If you are just paying the minimum ‘default’ figure, increase this immediately to a higher amount you can afford, or clear the entire balance.

Questions to consider

How much interest are you paying on your credit cards?

How do you use your credit cards?

How much do you pay off each month?

Would you still buy that gadget or item of clothing if you had to pay for it in cash or straight out of your bank account? 

Albert Einstein said ‘compound interest is one of the most powerful forces on earth’. 

Using compound interest to your advantage in saving a