In Professor Dan Ariely’s book “Irrational and Not by Accident”, the author describes an interesting phenomenon: people think they are acting rationally, but in practice their decisions defy all logic. Indeed, many families make economic decisions not out of rationality but out of fixation of thought or social influences. Even when these families are cornered and heavily indebted, we still hear irrational statements from them that, if they continue to act on them, their economic future will only deteriorate further.
We have compiled some of the statements we hear many times, and if you also live by these statements – you should consider changing your economic outlook. Before it’s too late.
1. “Although the financialsituation is notsimpleand we have quite a few loans, we continue to save for children who will at least have something left.”
- They don’t always have “something left”: if the debts swell in the end, there will be no choice but to use the savings. The loss is twofold: there will be nothing left for the children and you have paid high interest on the loans in order to continue financing the savings at the same time.
- Simple arithmetic: Calculate the difference between income and expenses, add the interest rate on loans and debts so you know how much they really cost you. Against them must be placed the savings and interest that it carries. Only then can the feasibility be considered. Interest on loans or overdrafts at the bank is much higher than the interest given on savings.
- Temporary situation: Stopping the savings provision for a certain period of time may alleviate the situation. After a concerted effort and economic recovery – you can go back and save.
2. “No matter howbad our financial situation is, we won’t give up on our home.”
- Never say never: Yes, selling your home is one of the most painful decisions there is, but sometimes there is no choice. Sometimes it is impossible to meet the monthly repayment amounts of the mortgage, and despite all attempts at refinancing – the burden is unbearable. Only selling the house and covering the mortgage will finally allow you to breathe a sigh of relief.
- The house is not really yours: Over time, when it is not possible to pay for the loans and mortgage, the right decision is to sell the house as you may lose it and lose even more if the bank ends up foreclosing on it.
- You will not stay on the street: often after selling the house you can cover some of the debts and the rest of the money to buy a cheaper apartment. You can also consider renting out your home and renting a more modest home.
3. “When the children are small, even if I go out to work, the whole salary will go to a nanny or daycare. I’d better stay home.”
- Looking ahead: This may be the correct statement if expected income is indeed low, but the issue of employment should be examined from a long-term perspective. When continuity and continuity of employment are maintained, work experience is accumulated during these years as well, and later on there may be promotion in terms of position and salary.
- Continuity: It is very important to maintain continuity in pension contributions. A continuing education fund is also a valuable product to consider when considering whether to return to work.
- It’s not cheap to stay at home: staying at home doesn’t bring in either, but most of all – it expends: consume more, buy more, cook more, go out more and so on. An unhealthy equation in both directions.
4. “I have several credit cards from several clubs, I save a lot of money and deservea lot of benefits.”
- Not at all: having multiple credit cards is a sick evil. The fewer cards you have, the better for you and your bank account.
- The fine print: Don’t be tempted by nonbank credit cards. Certainly not in a hasty purchase at one of the supermarket chains. It sounds tempting at first, but after a year you usually start paying high fees.
- Lack of control: It is very difficult to track expenses when each “ironing” comes out of a different card. As is well known, monitoring and controlling expenses is the key to the ability to properly manage the family’s finances.
A guide to proper credit card management
5. “None Me concept what Happens with Pension My. When we arrive Bridge Move him (Except Of this what already Allow Do About it)”.
- Hey, you’ve been on the bridge for years: the sooner you realize how important it is to regulate your pension – the better off when you retire.
- What to do? Do: It is quite possible to improve your conditions. Only by reducing the amount of commission you pay can you save tens and sometimes even hundreds of thousands of shekels in retirement.
- Criticism: There are constantly changes – constitutional and personal. A decision that was right in the past, not necessarily right now. Therefore, with every change and every year or two, it is necessary to reexamine the suitability of past decisions to the present situation and to future planning.
6. “Debtisnot my problem – it’s the bank’s. Let the bank manager take care“.
- The debt is yours: You are solely responsible for paying your debts. The sooner you realize this, the sooner you can return to a financially balanced life.
We know, things are not simple. It’s not easy to digest the idea that your accounts and assets might be seized. But economic conduct should be as rational as possible. Take a hard look at your financial situation and don’t get caught up in fixations that can make it worse. Most importantly, remember: debt is a temporary condition that you can get out of – and then get back to normal.
