Does the way you perceive your financial reality match your actual situation?
You don’t need to wear a mask to dress up. We all wear financial costumes, not just during costume holidays. Some of us present a better situation than reality, while others paint a gloomier picture than what actually exists.
Paamonim presents the most popular financial costumes people wear.
“It’s Just a Small Monthly Payment!”
“When I walked into the dealership, they offered me an excellent deal! A new vehicle for ‘only’ the equivalent of a small monthly payment! What a great deal – I’ll drive a new car, get a three-year warranty, and won’t have to pay for repairs either. After three years, I’ll sell the vehicle, cover the financing, and buy another new car the same way.”
The Reality: A Mounting Debt Trap
Anyone who thinks they purchased a new car with small monthly payments is mistaken, and seriously so. What they have really purchased, is a loan, a debt on which they’ll usually pay a very high interest. After three years, the vehicle will have lost its value while the loan for its purchase will have accumulated high interest, meaning this is actually a double loss and the forfeiture of tens of thousands of shekels within three years.
“We Always Have Everything We Need”
“Anyone who opens our refrigerator will always see we have everything. Everyone has exactly what they love to eat at any given time. When we want to cook or bake something, we never lack any ingredient.
The kids love eating fresh food every day, so each week we throw away large quantities of cooked food, vegetables, and dairy products. We spend a lot of money on groceries, sometimes spreading payments across installments. Looking at the credit card statement, you can see payments upon payments for past supermarket purchases.”
The Reality: Paying Tomorrow for What You Eat Today
Purchasing groceries on installment plans means taking out a loan for every supermarket trip. The food products we bought this week will be consumed this week, so they should be paid for with money we have this month, not with money from future months. Next month we’ll also shop at the supermarket and need to pay for those purchases too.
“Everyone Takes Vacations, Why Shouldn’t We?”
“We heard about all the exotic destinations our neighbors or friends visit every vacation. The kids told us everyone in class travels abroad. We saw a really attractive offer to take a loan for a vacation and repay it whenever we can. We decided to live in the moment and took the loan.”
The Reality: A Vacation You’ll Be Paying For Long After the Tan Fades
Available loans for any purpose are thrown at us from all directions: from banks, credit card companies, and insurance and finance companies. The loans are given easily and instantly. The interest on the loan is usually extremely high, especially those offering “just pay back the interest and return the loan when you can.” The extended loan ensures one thing for certain: remembering that vacation for many years to come, every month when you see the monthly repayment leaving your bank account.
“We Can’t Show Up Empty-Handed”
“At the last event we hosted, they gave us a generous gift. They’re close friends and we know how much their portion cost them. How can we attend their celebration when we have no way to give them a respectable gift?”
The Reality: Gifts Should Reflect Your Heart, Not Your Bank Account
The gift isn’t supposed to cover the cost of the meal. Give a gift according to your financial ability. When it comes to people close and dear to your heart, it’s worthwhile updating them, sharing with them that these are financially difficult times and maybe even consider postponing giving the generous gift you’d like to give them until you have the ability to do so.
“Our Dream Home Is Perfect”
“The house we bought is truly stunning, but we don’t really have the ability to handle the mortgage payment each month. After the fixed payments and the mortgage, we have almost no money left for anything, barely for food. We lean on help from our parents every month.”
The Reality: House Rich, Cash Poor
Before making a decision to purchase a home, you need to map out your financial situation while considering expected changes in the mortgage amount (resulting from interest rate changes and economic conditions) and your financial capacity (resulting from changes in family structure, employment changes, and more).
Only when you know what equity you have and what maximum monthly repayment amount you can commit to (one that leaves an economic “safety margin”) can you truly commit to an amount you can live with peacefully each month.
The best financial costume to wear? None at all. When you take off the mask and see your financial situation clearly, you gain the power to make real changes. Start today by looking honestly at one area where you’ve been wearing a costume, and take one small step toward financial authenticity. Your future self will thank you for the courage to face reality now.
