“Why don’t you tell people how to go broke?”
I was flabbergasted when the folks from The American Legion Magazine gave me that little snippet of editorial direction for this feature. And then I smiled.
Here was an opportunity to have a little fun and provide some financial wisdom – or anti-wisdom, if you will.
My initial thought was to present three or four money moves that have the potential to put you in a bad financial place. But once I began to sketch out some ideas, the list just kept growing. Finally I stopped at nine. There are plenty of terrible financial choices you could make, but these are some favorites. Keep in mind that I’m being sarcastic here, telling you what not to do.
If going broke is your goal, let’s look at some ways to make it a reality:
- Improve your life with credit cards. Whether your income is big or small, spending more than you make is easier than you might think. I’ve seen people with a whole lot of income execute the task flawlessly. Credit cards can be a key force multiplier in any sort of overspending mission. Use them often and everywhere in hopes of pushing your lifestyle well beyond the boundaries of your means. You only live once; why not do it on the back of a 25 percent interest rate revolving line of credit? And remember, make only the minimum payments.
- Buy a big house. We’ve been through a housing crisis, but thankfully over the past couple of years, things have loosened up again. Don’t worry about what you know you can afford in the context of your overall lifestyle and finances. Instead, figure out how much you can borrow, and let that be your guide. Forget about little details like property taxes, insurance, maintenance, homeowners association dues and other household-related expenses. Those things will take care of themselves. Find the house of your dreams, and go big or go home!
- Take the eight-year car loan. USAA recommends keeping transportation expenses around 10 percent of your gross income and, if you have to borrow, taking on a car loan that’s 60 months or less. Let me be frank: that approach to car ownership is probably not going to leave you broke. Instead, buy new. Getting a 72- or 84-month car loan could make the payments somewhat affordable and means you’ll be paying plenty more in interest. And don’t worry about what it’s going to cost to insure, maintain or fuel the vehicle. That’s what credit cards are for.
- Implement a flawed savings strategy. Buy all the stuff you need, but especially the stuff you want: clothes, experiences, dining and other luxuries. If there’s money left over at the end of the month, then you can think about socking it away in your emergency fund, college account or retirement savings. No money left over? No worries, there’s always next month.
- Pay Uncle Sam too much. If you’re trying to go broke, Uncle Sam can help. All you need to do is be as inefficient as possible. Don’t take advantage of tax breaks for contributing to a work retirement plan or IRA. Don’t bother tracking deductible expenses like charitable contributions, either, and definitely don’t take the time to see if itemizing makes more sense than the standard deduction on your taxes. This approach is really two-pronged; along with frittering away money today, it will also keep you from amassing a counterproductive pile of assets in the future.
- Get divorced. If you’re trying to go broke, there’s no better move.
- Take the Joneses to the woodshed. Keep up with the Joneses? No way. Pound them into submission. Cars, houses, electronic gadgets. Whatever it is, you’ve got to have – and flaunt – the latest and greatest. Oh, the Joneses are going to Disney World? Honey, let them know we’re taking the entire extended family to Disneyland Paris!
- Co-sign for someone ... or anyone. Helping out family, friends or neighbors by co-signing on their loans is a super way to shift it into high gear on the road to ruin. Since any debts you co-sign for will be your responsibility and reflected on your credit report, you could end up having to make their payments and suffer the highest interest rates the next time you borrow.
- Take a pass on insurance. A key purpose for insurance is to help you avoid financial disaster. Not having insurance opens you and your family up to the full financial effect of all kinds of risks, including vehicle accidents, injury, illness or death. Without it, you and your loved ones could become strapped with crippling debt.
Changed jobs and lost some life or disability insurance? No problem. Carrying the absolute minimum liability coverage on your auto policy? No problem. Not only that, but some forms of insurance are mandatory, so you could pay extra penalties or fines for not keeping them in place. Another great route to Brokesville!
If you don’t see yourself in the descriptions above, that’s a good thing. On the other hand, if some of them sound a little too familiar, it’s time to change course. You may be on a path that leads to financial ruin, and that’s not funny.
J.J. Montanaro is a certified financial planner with USAA’s Military Affairs Advocacy Group. USAA is The American Legion’s preferred provider of financial services.