Last year the wife and I took a trip to Las Vegas for our wedding anniversary, a tradition we’ve kept up since we were married there in 2013 (Don’t freak out. It was planned).
Being the quasi travel hacker that I am, we used airline points for our flights and agreed to one of those timeshare presentations to get a free hotel stay at the Luxor (the pyramid with the light beam on top).
I thought I was being pretty sly and this would be maybe a small two hour detour in our otherwise awesome trip.
Yea… I was wrong.
Have you ever sat through one of those things in exchange for some free shit?
The hotel stay was fairly nice, but what they tried to guilt us into in exchange for it was awful, and from what I’ve seen, they hook way too many people (and no, I don’t feel guilty for taking advantage of these massive corporations’ lazy marketing strategies).
Fortunately I have commitment issues and I was not one of them. 🙂
The packages themselves actually aren’t all that bad, IF you want to take a huge vacation every single year. But on top of the up front cost, there is a non-negotiable monthly fee to all of these things.
So even if you never use your travel time (which a lot of people don’t), you get sucked into a monthly financial commitment that you literally CANNOT get out of to the tune of up to $1,000 a year or more in some cases. Ours would have been $57 a month, and that was for one of the very small packages.
The only way to get rid of it is to try to offload your package on someone else, such as a family member (who wants to do that?), or to sell it on the open market for probably a lot less than you paid for it.
I could go on for several more paragraphs about how shitty of an experience that was (like being asked if I worked at McDonald’s after telling the salesman I didn’t want a monthly commitment), but I digress.
Keep Your Commitments to a Minimum
My point here is that life is cyclical. Some years are good. Some years aren’t.
Maybe it’s not always in the cards to take a lavish trip, but if you sign a commitment to do so, you have no choice. You’ve lost that chunk of your financial freedom for the length of that commitment.
Personally, I’ve been told a time or two in my life that I have commitment issues.
Maybe it’s not the greatest thing for relationships (although as I mentioned I am now happily married), but damnit, I wear this accusation as a badge of honor for my personal finances.
By following a philosophy of keeping as few financial commitments as possible, you’re more likely to keep your risk equally as low.
This is a key part of freedom of spending and avoiding sticky situations with your money.
“Hope for the best. Plan for the worst”, as they say.
What do I mean by a financial commitment? Any kind of debt you owe. Anything that you’ve signed a contract for a specified time period. Anything that you’re committed to repaying at a later date.
Think about some of the financial commitments you might have right now.
- Car payments
- Mortgages or leases
- Homeowner’s association fees
- Cable or satellite contracts
- Financed furniture
- Financed electronics
- Heavily leveraged lines of credits
- Student loans
- Expensive tuition payments
- Credit card balances (gasp!)
- Anything with a membership or subscription fee
The amount of ways to get into financial commitments in this world of ever-expanding “quality of life” is endless.
The problem is, the more commitments you get into, the less flexibility and freedom you have with your money. Eventually your bank statement becomes dozens of lines of payments that represent these commitments.
Then all you’re left with is grocery money (or so I hope!)
That’s not to say all financial commitments are a bad thing
Truthfully, the short-term stuff isn’t a big deal as long as you keep it in check to the stuff that really enhances your life. Just don’t be stupid and buy things on credit that you can’t afford with cash.
If you’re going to use debt, use it wisely.
What you want to be careful of are long-term commitments that are difficult to get out of. These are typically your larger balance items, or very long term service contracts (I once got roped into a 5 year contract for a home security system that could have easily been shorter – lesson learned).
I think you get the picture. The more long-term commitments you avoid, the more freedom you have with your money and the less trouble you’re likely to get into in unexpected situations.
My Personal Rule
Personally, my rule is if I can’t pay off something completely in 2 years (aside from my mortgage), then I find a way to live without it until I can.
To me, it’s just not worth the risk of tying up money for longer than that.
For example, I’ve driven the same car for 11 years, and have been saving for my next one for the last 5. I’ll likely be able to pay cash for whatever comes next, but I’m good with what I’ve got for now.
You don’t have to follow the same rule as me, but I do suggest that you think more deeply about what works for you.
Some people are more conservative and take an approach of paying cash for absolutely everything, like my buddy Justin.
Some people can take on a little bit more risk and are comfortable carrying debt for a few years.
We’re all different.
What matters is that before you make those long-term commitments, think about the freedom you’re losing as well, and the impact those commitments will have on your financial goals.
Priorities change over time, and when they do, you don’t want to be trapped in a financial commitment you can’t escape.