The Financing Trap

by Stacy Francis, CFP®, CDFA

Someone told me the other day that whenever an American scores a 5% raise, he or she immediately ups spending with 10%. Crazy, you may say, but the thing is, our society is built around exactly this sort of behavior. It doesn’t actually take money to spend money – in the short term, anyway. Sales people, banks, and other types of institutions are tossing money at us in a manner much similar to the way guests toss confetti at the bride and groom at weddings. Chances are, you’ve heard something along the lines of “0% down”, “no interest until 2010” or “cash back” within the past hour. But while these sorts of deals may sound like dreams coming true, in reality, many a people have had their finances ruined by them.

Why?

Because the sales reps aren’t just giving you that bed, car, flat screen TV or whatever it is you’re shopping for, for free. Sooner or later, the time will come for you to pay for it, and then you are stuck with your current bills (rent, groceries, gas, insurance, etc, etc) plus the bills you didn’t pay years ago. And though it is easy to think “no problem, three years from now, I’m going to make a killing anyway”, unless you are Nostradamus and can predict the future, chances are, you may not. Your company may go belly up, a family member may have an accident and end up hospitalized, or you may get divorced. The guy at my local Postal Annex has this problem. In order to keep up with his bills, he works from 9 to 6 there, and then goes straight to his second job at a warehouse, where he stays until midnight.

I’m not saying you should never finance anything, because there will be times when this is your only option. But beware of the risks – and plan ahead for the day when you will have to pay for your merchandise.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.