How to Spend Money You Don’t Have
March 5, 2011
If you’ve ever bought a car or a house then you’ve probably spent money that you didn’t have. Or if you have a credit card you might have paid for something without having the funds to back it up.
A hundred years ago, or even several decades ago, it was pretty difficult to buy something if you didn’t have the money. However, access to credit in today’s economy makes it relatively easy to spend money that you don’t have.
Should You Borrow Money?
We were faced with this decision yesterday when invited to go on a trip with some good friends of ours. We really wanted to go but we recently visited California for my wife’s birthday so our travel funds were depleted. Not to mention that I just mailed in the biggest check I’ve ever written in my life to paydown and recast our mortgage.
Even though we didn’t have the money on hand to pay for all the travel, we knew we’d eventually have it. We could have paid for everything on credit and paid it off later but we make it a habit to pay our credit card bill in full each month so that wasn’t something we were willing to do. Still, we really wanted to go on the trip so having to tell them that we didn’t have the money was tough.
Of course everyone’s decision making process will be different based on your financial situation but there is one thing that’s true for everyone trying to decide if they should borrow money or not, you should make the decision with care or you might end up regretting it.
Steps to Spending Money You Don’t Have
Here are some high level steps to take if you find yourself looking to spend money you don’t have.
1) Estimate the cost of what you need/want.
2) Figure out how much you can afford to spend.
3) Determine how much money you’re short.
Once you know how much more cash you need you can consider ways to get that amount without borrowing it.
4) Look for places you can “find money”.
5) Estimate how quickly you can get the money.
Now you have a feel for what you need and how long it would take to come up with that money. If you cant wait that long or can’t figure out ways to “find money” (like earning extra money or re-prioritizing areas of your budget) one potential step is borrowing money.
How you choose to borrow the money can have a big impact on the premium you’ll pay for spending money you don’t have.
6) Determine who you’ll borrow from.
7) Calculate the cost of borrowing the money.
You can get quick and easy access to credit if you have a credit card in your wallet, however, you’ll pay pretty high interest rates until you pay the money back. One option is to apply for a loan with your local bank or through an online bank where rates can sometimes be cheaper.
You’ll have to weigh your different options for borrowing the money. For example, you’ll have to apply and go through a funding process if you choose to borrow from a peer to peer lending site like Prosper or Lending Club. In contrast, you can get a pay day loan right away but the cost will be a much higher interest rate.
At the end of these steps you’ll know approximately how much money you need, where you can borrow it from, and what it will cost you. Then you’ll have enough information to decide whether or not it’s worth it to spend money you don’t have. I hope these tips can help you make that decision.
All posts by Ben Edwards