Today I’m going to give you a new way of thinking that could be a curse or a great strength depending on how you yield it.
So, summer is coming up fast and it is vacation season. Fun right? Well, if you are carrying credit card debt at 10 percent interest and you decided to go on vacation, even if you pay with cash, you are financing that vacation.
Go ahead, and turn the video off if you need to. It’s a downer, I know.
The Cold, Hard Truth
If you go on vacation, and spend that money, before you pay off your credit card, then you decided to borrow money to go on that vacation.
This is the curse and power of zero-based budgeting. When you do something over here, it means you are not doing it somewhere else.
I had an accounting teacher who would give his wife a hard time if she opted for a soda at the fast food place because, “You know, if you invested that money at 8% over a lifetime of not buying sodas, we would have $90k. So I hope you are enjoying that soda…”
That is no way to live, of course, but it is something to think about.
Priority Messer-Uppers and Dream Killers
If you go on vacation and pay with cash, congratulations. You saved up that cash—that is awesome. And I’m so glad you are using Rule Two. But if you are still carrying credit card debt, you still financed that trip.
Is that a downer? Absolutely.
Credit cards are priority messer-uppers and dream killers.
You have these dreams and aspirations. You want to go on vacation—you’ll even pay in cash! Sure, you have some credit card debt, but you are slowly paying it off. But when you take that chunk of money and go on vacation, your credit cards are taunting you, “You should have paid us off!”
And who wants to live a life of should-haves?
This is just something to think about. You could do the same thing with your student loans, with your mortgage. Would you borrow on your house to go on vacation? Do you see how dangerous this line of thinking can be? I use it all the time.
The Good News: Your Priorities Are Yours
But at the end of the day, you can fall back on Rule One: Give Every Dollar A Job. Your priorities. And that’s why I feel safe sharing this depressing truth with you.
Because if you can look me straight in the eyes and say, “Jesse, I wanted to go on the vacation more than I wanted to pay off the debt.”
“At ten percent interest?”
“Absolutely. Just go do another Whiteboard Wednesday or something, you jerk.”
Then OK. When you can say that, when you’ve weighed and wrestled with your priorities, and you know beyond a shadow of a doubt what is most important to you, well then, I’m good with that. We all have our priorities. And that is what YNAB is all about—funding our own personal priorities.
You know what’s cool, though? A lot of people—that are wired a little bit like me—they will say, “This is what I want!” And they will be talking about getting rid of their credit card debt. And I love that.
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