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This Is How Credit Cards Are Manipulating You Into More Debt

This Is How Credit Cards Are Manipulating You Into More Debt

Unlike payment plans, credit cards are not bad in and of themselves. While some credit cards are worse than others, the main offender is the way we use them. But it’s not a coincidence that the spending habits of many are negatively affected by credit cards. In this article we’ll take a look at some of the reasons why credit cards seem to breed bad economic decisions, indirectly manipulating you into more credit card debt.

1. Credit Cards Are Overly Convenient

Some recent studies show that the convenience might be the biggest factor. When people have to fork up cash, there is a tendency to do much less meaningless spending. But when using a credit card, because you don’t have to deal with the extra middle-man of actual money, or worry about whether or not you can afford it, everything becomes almost too painless. Often leading to little or no consideration before a purchase.

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2. They Enable A Very Instant-Gratification-Focused Mindset

The advantage and, perhaps for most of us, disadvantage of the credit card is that you can use money you don’t have instantly. For someone who needs to restock his supply of ramen to avoid starving, great. But there is a huge downside as well. It enables us to prioritize instant gratification, and forsake long-term thinking and planning. The worst examples of this are people who abuse credit cards to live like kings for a couple of months, only to spend the rest of their adult lives repaying their debts. Thankfully these examples are fairly rare, and most of us manage to keep our inner big spender in check to one degree or another.

3. They Have Absurd Interest Policies

When we think about interest, we’re usually thinking of the annual interest that comes a long with a standard bank loan. But credit cards are different. In return for the perceived convenience, they often offer what amounts to interest rates of well over 20% annually on anything you fail to pay back. But because they count the interest month by month, it doesn’t sound like too much. “Oh, only 2% interest per month! That’s not too bad.” Of course this varies slightly from card to card. Some credit cards also have insane penalties if you miss a payment.

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4. They Enable You To Spend More Than You Earn Or Have For No Reason

The thing that makes the painful process of applying for a loan so reasonable, is that you should have a damn good reason to apply for a loan. And also have done the necessary research and preparation. Credit cards—although on a smaller scale, granted—enable you to spend money you don’t have for no actual reason. Which can lead to things like people buying new clothes “just because they felt like it,” when in reality they had no money to buy them with.

5. They Make It Hard To Keep Track Of Spending

Well, you could perhaps argue the contrary. If you bother to go online and check once every day, the numbers are lined up for you nice and tidy. The problem is that it is so easy to not keep track. When you use cash, you have to continuously withdraw money to then spend it. That way how much money you’re spending always registers, and you have some oversight as to your total spending for the week or month. But when you’re always using a credit card, it doesn’t register in the same way. Even after going way beyond your means, the credit card doesn’t tell you that you’ve already spent last month’s paycheck and then some. It almost encourages it.

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To avoid inducing personal bankruptcy and not getting their money back, many companies have started stricter policies about their credit limits. But sadly, the purpose of a credit card is not our convenience, but to make the issuer money. So it is unlikely that the credit card companies will take further steps that hold you more accountable for your everyday spending. Therefore, it is ultimately only by taking responsibility yourself that you can change.

If you do your research and chose the right credit card, you can actually save money and get bonuses like frequent flyer miles as rewards for your spending, provided you stay diligent and always pay up in time.

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Further reading: The Mental Roadblocks Of Paying Down Debt, And How To Face ThemTravel Hacking Guide | Advanced Travel Hacking: The Credit Card Blitzkrieg | Gaming The System: How To Make Credit Cards Work For You

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Published on May 7, 2019

How to Invest for Retirement (The Smart and Stress-Free Way)

How to Invest for Retirement (The Smart and Stress-Free Way)

When it comes to stocks, I bet you feel like you have no idea what you’re doing.

Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

Here’s how to invest for retirement the smart and stress-free way:

1. Know Clearly Why You Invest

Odds are you already know why should invest for retirement.

But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

  • Will you spend more time with your family?
  • What does retirement mean to you?
  • Are you looking to launch that business you’ve been holding off for years?

Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

2. Figure out When to Invest

“The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

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A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

Investing your money well depends on your emotions.

Why?

Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

4. Open a Reliable Retirement Account

Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

  1. Vanguard
  2. TD Ameritrade
  3. Charles Schwab

5. Challenge Yourself to Invest Consistently

Committing to invest for retirement is hard, but continuing to do so is harder.

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Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

6. Consider Where to Invest Your Money

The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

Robo Advisors

Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

Bonds

Think of bonds as “IOUs” to whomever you buy them from.

Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

Here are the different types of bond categories:[5]

  1. Treasury bonds
  2. Government bonds
  3. Corporate bonds
  4. Foreign bonds
  5. Mortgage-backed bonds
  6. Municipal bonds

Mutual Funds

Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

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Real Estate

Yes, buying a home is an investment when done correctly.

Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

Savings Accounts

Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

7. Master Disincline to Dodge Short Success

Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

So how can you master delayed gratification?

By building your discipline.

Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

8. Aggressively Invest on This One Investment

I’ve mentioned several types of investments but haven’t covered the most important one.

It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

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More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

But, how can you invest yourself?

Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

Retire Happy with Excess Money

The key to a secure financial future doesn’t only belong to financial experts.

It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

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Featured photo credit: Matthew Bennett via unsplash.com

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