Hi everyone, this is Dan Thompson with wise money tools. Welcome to this video or podcast. You know today I want to talk about debt and credit some of the pitfalls that people fall into, and they don't even do it necessarily on purpose. But we live in a world today with really easy credit, which means easy debt. We got bank and finance companies are always out to look to grab another family, shackle them down with debt the rest of their lives if they possibly can. If you have bad credit, even that's not a big problem anymore. There's plenty of payday loan locations, willing to kind of gouge you with extremely high interest rates for just a few bucks in their loans. Sadly, payday loan shops. They loan for things that really people should never be borrowing money for but they get themselves in these really dire circumstances and they can't have help it.


For instance, you don't want to take a payday loan for an electric bill or a phone bill or groceries or for maybe some car payments that you missed. payday loan shops can charge as much as 30%, and sometimes even higher for these short term loans. What you may not know and what you may think, is that these companies are just all crazy profitable. But you know, they're not as profitable as you might think. Now I'm sure some of them do fine. But the amount of losses they have, because they write off these bad loans almost equals many of their profits. I saw one company that basically made .75% when it was all said and done because of all the losses they had to write off. So it can sometimes justify the high interest because a lot of people don't pay those loans back. Well, in a payday loans trap, it's almost impossible to get out once you get started.


If you're struggling to make a, let's say $100 cell phone payment, and then you have to go borrow that hundred dollars. And now based on their rates and their fees, maybe you've got to pay $120 or $130 back later, I don't see how that's gonna help you start to get into this whirlpool, you're spinning downward. You're trying to keep your head above water, but the interest rate just keeps piling on interest on interest. And it makes it almost a monumental task to finally swim out of that Whirlpool. Well, you know, I've been doing this financial advisor stuff for pushing into 35 years now and I've seen just about everything. You know I've run into several situations over the years. And I remember thinking, wow! you know if these people just changed a few of their habits they might be able to improve their situation. I remember this one couple they were in there, oh, just getting into their 30s.


They never really had saved any money. But yet they both had some pretty good jobs over the years. But because of the debt that they had, and just letting their you know, money go through their fingers, the spending it overtaken their finances. They've made some horrible decisions when it came to buying cars to instead of just getting a car that was, you know, very, very affordable. They always bought the nicer, more expensive car, and they strapped themselves to these payments, and they would just stretch their finances to the brink of disaster. What sad is they just felt like they deserved it. I always ask, what does that mean? I see so many commercials that say you deserve it. And I always asked myself, why do I deserve a new car or whiter teeth or a big TV or main other things that I'm supposed to at least supposed to be deserving of. Well, you deserve to be in debt the rest of your life if you think by buying these things you deserve is gonna help you out in life.


Well, this couple they needed to borrow money to make ends meet way too often. You know, their cars were always on the edge of being repossessed, they'd have to go to payday loan places. They have to get money to make just their car payment that they were supposed to have made. And oftentimes, they had to go to family and rely on them to bail them out to make payments forum. It put a real strain on their family relationships as well. They fell for this illusion that they were always gonna be able to make a car payment. You know, you go into the showroom, you see the car, you try to justify in your mind. Oh, we'll be able to make it you know, and again felt like they deserved the more expensive car. I'm not sure how they convinced themselves are doing that. but evidently they did. Have they just taken a car payment and cut it in half and then save that difference. At least if they got in a bind in the future they'd have a little bit of cash to fall back on.


Well, that was bad enough but what made their situation even worse is that they stopped to buy a soft drink every day, sometimes a couple of days. For others, many of people who listening to this it might be stopping for that cup of coffee every day. Add to that the wife she had, you know her nails done all the time. Her hair is beautiful, always spending money, doing those kinds of things. And the husband wasn't much better. What he did is he not only stopped for his beverages, but he also ate out almost every day and this cost somewhere between $7, $10, $12 every day. Add that into What she might have been spending on nails and her hair, and so on and so forth. My guess is they were spending, you know, a couple hundred bucks a month just on those things. Now, speaking of beverages, this is a kind of an interesting statistic, but two thirds of adults spend money on coffee each week, okay? And that doesn't include if they get is soda or alcohol.


And then out of those who buy coffee, 20% of them so 20% of all those who buy coffee, spend more than $20 a week on coffee, that's $80 a month. Now, if you add alcohol in there, you know alcohol can be extremely expensive. And the worst part about alcohol is it can add some additional stress to your life and your relationships too. I won't go there. Anyway, then again like I mentioned, the nails, the hair, the drinks, the eating out, it can suddenly max out your paycheck. But worse leave you with nothing to save or invest. They didn't follow the first rule of life and that is to pay themselves first. I think about this couple and a few things come to mind. If they would have bought a car for, let's say, half the cost or half the payment. Maybe they could have saved a couple hundred bucks a month, just in car payments. Cut out half the beverages, half the eating out, half the nails, half the hair, and there's probably another $150 maybe $200 a month more that they could save.


All told, I think this couple could have easily found a way by just controlling some of their spending to save $450 to $500 a month and not drastically changed their lifestyle. The problem was, these were the choices they were making. They burden themself with these self imposed costs and debt. And it was things that they didn't necessarily need but that they were spending their money on. So let's just presume that they wasted $500 a month, and it just kind of slipped through their fingers. Now let's suppose that instead of it slipping through their fingers, they actually saved it. Okay? In a year's time, that would be $6,000. Now let's take it one step further. Let's say they save this $500 for the next 30 years, remember, they were just in their early 30s. So let's just assume they were 35. And they're gonna saved for the next 30 years till they're 65. Well, we've got one program, where it only projects a historical return of about 7%.


But in that 30 year period of time, what it would do is it would grow to such a significant amount of capital that it could send of a $100,000 a year, tax free the rest of their lives. Now think about that. The cost Starbucks or Coca Cola, or painted nails are eating out, cost them $400 to $500 a month. But what it really costs them was $100,000 per year in annual retirement income. Now, that's $500 a month, suppose they could only save half that much. That still means from age 35 to 65, saving $250 a month, and cut back on some of the wasted habits. They'd have over $50,000 a year and tax free income again, the rest of their life. Oftentimes, the choices we make and the habits of spinning cost us far more than the few bucks here and a few bucks there is pretty simple. Money has a magical power to grow and compound if you leave it alone. So next time you're buying a cup of coffee or a soda or you're out to eat, you're spending some money on things that you may not need.


Because if you spend everything that you get, think about what you're giving up in the future. You're literally driving, eating and drinking your future away. You're missing out on letting your money work for you by choices that you might be making today. How often do I hear? Well, it's just $1. Or it's only 5 bucks. At the same time, this person can't save a dime, as no money. And when they're in a bind, they gotta call family for help. If this person would just take a bit of responsibility, spend a little bit less by little less expensive car, be more self reliant, don't rely on family, tuck some money away. It'd be surprised how fast they'd have a little mistake. Look, no one wants to live life where you can enjoy little things along the way. And I want somebody not to be able to have a soda pop here and there. I don't want to be the guy saying no, you know, you can't go out to eat and all that stuff that's not very fun. But just have a little bit more clarity on where your money's going.


And you can always have some fun along the way. Put your house in order, save some money, get out and stay out of debt. And with just a little bit of sacrifice, you can massively change your future and generations to come. Alright, well that's it for this video. If you have any questions shoot your questions at wise money tools.com, always subscribe, make sure you make a comment below. Happy to help any way we can. And if you want to have a little strategy session, just click on the time trade link below. Pick a time and we'll talk a little bit about your situation how you might be able to prove it and till next time. Hope you enjoyed this video. Look forward to seeing you then take care.