Ten Warning Signs of a Normal Financial Life
If you ever listen to Dave Ramsey, you know that he acknowledges that what he teaches is “abnormal” compared to the “normal” financial behavior we see engaged in by a substantial majority of American consumers. I don’t agree with everything that Ramsey preaches but his statements about normal financial behavior ring true to me.
So, I have compiled my own list of ten signs or indicators that someone is engaged in bad financial and money behaviors that are now, unfortunately, considered normal. These are not in any particular order of significance. You may have others to suggest.
Everywhere I look on personal finance message boards and in the popular press, credit scores are the number one topic of discussion. People are adding to their cash flow problems by actually paying monthly fees to the credit bureaus so that they can have real time access to their scores. I have started a series on credit score addiction. We need a cure. Now.
2. You think re-paying a 401(k) loan is an investment.
It is bad enough that so many adults – even baby boomers like me – are taking loans from their 401k accounts to pay bills or to buy new cars, boats, and all kinds of non-essentials and luxuries. What makes it worse is that these borrowers justify their behavior by arguing that they are re-paying interest to themselves as if it were part of a grand investment strategy. This is nonsense. Please don’t go there.
3. You are comfortable being upside down.
Most new car buyers are “upside down” on their car loans the minute they drive off the lot. Nothing new or recent about that. Unfortunately, with all the “liars loans”, “interest only” loans, and similar crazy-bad mortgage products that have been sold to eager McMansion buyers, negative equity status has rapidly spread into all sorts of secured loans, achieving a strange level of acceptance.
4. You brag about “no money down” purchases.
Who hasn’t heard the ubiquitous battle cry of the giant furniture store chains: “No money down – twelve months same as cash!” That sales pitch is now everywhere. Eager buyers (having no money to put down anyway) brag about snagging these deals. Of course, when the “same as cash” period ends and they can’t pay the loan principal, all of the interest that they didn’t pay suddenly becomes due. Oh-Oh. Not bragging now, are we?
5. You are happy to do oblige the government by promptly spending all of your stimulus check.
Every knowledgeable financial pundit and most honest government economists warn about the pathetically low (or non-existent) savings rate in this country. So what does our government do this summer? It sends everyone money and tells them to spend it! Forget savings – consumption is king! Sadly, most of the recipients were quite patriotic. They happily obliged Uncle Sam and spent that stimulus money in 48 hours.
6. You believe a cash-out refi is a debt reduction strategy.
Who hasn’t heard someone say that they were going to re-finance their mortgage so that they can pull cash out to “pay off debt”? Uh…what part of “debt” don’t they understand?
7. Instead of asking the price of the new car on the lot, you ask “how large will my payments be?”
If a new car salesman can get you involved in this conversation, you are finished as a smart consumer. I’ve never asked this question because I pay cash for cars. Car dealers don’t like this because of all the money they make on financing. With all of the focus on payment size, it makes me wonder if car buyers can even do the math necessary to total their payments up.
8. You are afraid to open your mail when the bills arrive.
It used to be that “mail phobia” was limited to the post-holiday season. Now that credit cards are the emergency fund of choice, this part of the post-holiday blues seems to last all year long.
9. You track your cash flow and bank account balance using ATM receipts.
Spend an hour at the end of the month observing a busy ATM. The looks of concern on the users can be amusing, as they punch buttons hoping for news that they still have money to spend. If the receipt is rapidly crumpled and thrown away – what can that mean? Time for a cash advance from Mr. MasterCard.
10. Mr. FICO is your friend. Mr. Net Worth is a stranger.
Most adults can and do recite their FICO scores as if they had just aced the SAT. Ask them their net worth and you are likely to get a blank stare or outright hostility. After all, one of these measures of financial status is a positive number. Unfortunately, the other measure – net worth- is too often a negative number.
OK normal and abnormal readers – can you add to the list?