Freedom From Financial Fear

💡 Underrated savings tip: Avoid overspending by sticking to a grocery list when shopping.

Credit card - financial drug and remedy

1. My credit card addiction.
2. How it affects your brain.
3. Credit card myths
4. Escaping credit card dependence.

Title: 1. My credit card addiction.

About 10 years ago, I got my first credit card. The only thing I was told was that I must have it to start building my credit score. I didn’t really understand what it meant and as a new immigrant, I didn’t really care at that point. Everyone had one, and of course, I got one.

Fast forward a few years later - I started using it on a regular basis and paid it off every single month. The one thing that I got hooked on were the Chase cashback rewards. Every time Chase asked me to “activate” them, I felt some excitement and was happy to see my “Ultimate Reward Points” rise up every few months when I checked my balance. “It is technically free money,” I thought and never cared to understand WHY they give me free money. In my brain, the reason didn’t matter because I was always careful with spending (as I thought) and never missed a payment. This was my addiction, called - “cashback addiction.” The logical questions I hear all the time are the following:

❓ Why would someone refuse to get FREE money from the bank?
❓ You still have to buy groceries, so why not just use a credit card for it?

It all makes sense, and to be honest, mathematically speaking it can be more rewarding, but only if we include numbers, and not behavior.

Title: 2. How it affects your brain.

Multiple studies have illustrated that people tend to spend more when using credit cards compared to cash. For instance:

🔎 In 2004, an article by Motley Fool showed that people in Wendy’s spent 35% more using a plastic card than purchasing with cash.

🔎 In 2016, a DCPC Study from Massachusetts found that the average value of a cash transaction was $22, compared to $112 for the average non-cash transaction.

🔎 In 2021, the MIT Neuroeconomics Laboratory did research that studied the effect on our brain comparing using credit cards or cash for purchases. They found that while using plastic, our bodies don’t feel “pain” while spending money, and people don’t analyze the price of the purchase. On the contrary, our brain’s “reward center” gets excited when we see a credit card logo, which makes us more excited to buy more stuff. This “reward center” is targeted by things like co***ne and amphetamines.

In reality, people who pay off credit cards every month unconsciously might spend more money in a month than they could spend just using cash.

Co***ne can devastate our physical health, just as credit cards can eliminate our financial security.

Title: 3. Credit card “myths”.

There are many myths about why people believe that credit cards are better than debit cards; here are just a few of them:

✅ “Reward Points”. Cash back, free air travel points etc.
✅ Building a credit score. If you use it properly, your score will go up.
✅ Fraud protection. If your card gets stolen and someone uses it without your authorization - you can dispute this charge.
✅ Emergency fund. People tend to think that it’s a great tool for emergencies that can provide a temporary “buffer” if something happens in their life.

What about debit cards? Let’s compare:

✅ “Reward Points” - you don’t normally get any rewards while using a debit card. Banks are not stupid, and if you read the studies above, there is a reason why - people overspend more while using credit cards. So instead, if you use a debit card, you might be surprised that you will save more money than get cash back.
✅ Building a credit score. Debit cards are not a tool to build a credit score. Only credit cards can.
✅ Fraud protection. This is probably the biggest myth that people believe in. However, debit cards offer a similar type of fraud protection to credit cards, but you have to watch your bank account (which you should do anyways) and report any suspicious transaction on your debit card.
✅ Emergency fund. It’s a delusional statement because credit cards are not emergency funds - you have to pay them back. If you have a cash emergency fund and you spend it, it’s your money; you don’t owe anything to anyone.

The only difference from this example is that credit cards can be used as a tool to start building your credit score or keep it active.

Title: 4. Escaping credit card dependence.

I remember the time when I decided to stop using credit cards. It was a scary and uncertain feeling because emotionally I could see on a daily basis that my checking account was slowly shrinking. It took me about 3 months to stop thinking about it, and until today, I don’t carry plastic cards in my wallet.

Was it extreme? Yes. It was a choice that I made, and I know the benefits that it brings me in the long run.

Does everyone have to do it? Of course not. It has to be a choice based on knowledge, goals, and the current situation.

Here are only a few signs that you might have an “addiction”:

❗️ You have over 5 credit cards and are opening new ones.
❗️ You max out some or all of the cards on a regular basis.
❗️ You don’t “pay in full” each month.
❗️ You use them to buy things that you want and never consider the price of it.
❗️ You live in denial and have secrets from your loved ones because of a growing balance every month.
❗️ You are confident that you can outsmart banks and use rewards as a way to get free money.

If you see these signs, the good news is - there is a way out. But the first step is to BELIEVE in it and start taking action.

Here are the steps you should take if you're ready to make a change:

1️⃣ Acknowledge that you have a problem. This is the hardest, most emotional step. It is not easy, but you can do it. The sooner you start, the sooner you'll feel free.
2️⃣ Find support. Talk to your family or closest friends who will support you or not judge you. If you are afraid or feel ashamed, you can seek a coach who is certified and trained to help you. A professional coach must keep it confidential.
3️⃣ Budget. Start budgeting and build a plan on how to manage your money going forward.
4️⃣ Cut up credit cards. Don’t just throw them away or hide them.
Use cash or debit cards. Use these methods to purchase things that you've budgeted for.
5️⃣ Create a debt repayment plan. Start a plan using proven techniques that will help you pay off your debt as quickly as possible.
6️⃣ Educate yourself. Start reading books or subscribe to blogs that you trust related to personal finance.

In summary, it’s important to understand the risks and rewards, truth and lies regarding credit cards. You should not take it as financial advice, but just as a recommendation based on my experience, training, and knowledge.

If you feel hopeless and think that it's just too hard or impossible - feel free to reach out, and I will be happy to help you! As a coach, I was trained to help people get rid of any type of debt and show them how their life would change without it.

If you have a person or a friend that you love that needs help, share this post with them, and it might be a starting point in their life to experience freedom from financial fear.

Retirement is not an age – it’s a number
1. Misconception about retirement.
2. Problems with Social Security Payments.
3. Ways to save for retirement.
4. Importance to act TODAY.

Title: 1. Misconceptions about Retirement

Being in my early twenties and thinking about retirement seemed like a crazy idea. I believed that by the time I retired, I should have enough money saved, open a successful business (and of course, just do nothing and pick money from trees), or rely on social security benefits to cover my day-to-day expenses. However, once I started learning more about personal finance, my understanding changed. In my coaching experience, I've noticed common misconceptions people have about retirement. These are:

• Misconception - People who retire just relax and have no responsibilities.
• Reality – This might be true for some, but a study conducted by Pachex.com in 2023 shows that 55% of retirees returned to work because they needed more money. Those who don’t need to work anymore still have to manage healthcare-related costs and finances, potentially on a reduced income.

• Misconception – The Medicare program will cover all healthcare expenses.
• Reality – Medicare coverage starts after you turn 65. It’s a health insurance plan that covers most, but not all, health-related expenses. Patients still have to pay for deductibles, copayments, or coinsurance.

• Misconception - Social Security will be enough to live on.
• Reality - The average earner will receive only about 40% of their income after retiring.

• Misconception - Retirement planning starts after the age of 50.
• Reality - The later people start saving for retirement, the more they will need to save in their later years to catch up. Starting retirement planning early, in your 20s and 30s, gives people the opportunity to save more due to the power of compound interest.

Title: 2. Problems with Social Security Payments

2.1 Problem # 1 – The Misbelief that the Government will "Take Care of You".
If you've ever paid taxes and wondered where your money goes, you might have noticed Social Security and Medicare taxes. If you're unsure what these mean, here's a simple explanation: you pay Social Security tax today to support people who are currently disabled or retired. Similarly, you pay Medicare taxes today to finance a government insurance program that covers people over the age of 65 and younger individuals with disabilities.
Normally, you can retire at 62 (which means early retirement with less money) or wait until 67 (full retirement age) to collect Social Security payments. So if you retire today, people who work today are paying for your retirement benefits.

Every time you get paid, the government taxes 6.2% for Social Security and 1.45% for Medicare (totaling 7.65%) if you work for an employer. This amount doubles to 15.3% if you're self-employed.

Let's pretend you're 30 years old today, and you're curious about how much you will get paid at age 67 upon retirement. We'll run a few scenarios using different examples (I encourage you to try the Social Security Benefits Calculator online).

• First scenario: You started working at 18 and retired at 67 (49 working years). On average, you earned $60,000/year ($5,000 a month). Your Social Security monthly benefit will be $2,376 a month. Over 49 years, you will have paid approximately $182,280 in Social Security taxes.

• Second scenario: You worked from 18 until 67, but made $100,000/year ($8,333 a month). Your benefit will be $3,149 a month. Over 49 years, you will have paid approximately $303,800 in Social Security taxes.

• Third and final scenario: You worked the same number of years, but made a whopping $150,000/year on average ($12,500 a month). You probably think that because you're a hard-working rockstar, the government will take care of you, right? Your benefit amount will be only $3,692 a month. Over 49 years, you will have paid approximately $455,700 in Social Security taxes.

The more money you make, the less money you will get for retirement – it's just that simple. This is the first problem with Social Security, or what I call, "punishment" for high earners. Just look at these amounts and imagine these are real numbers you would receive today if you retired and hoped to live only on Social Security benefits. Would this be enough for you to live comfortably? Would it be enough for you to achieve your dreams?

2.2 Problem #2: Predictions Indicate that Government Funds will Deplete After 2035.

The Social Security system, also known as "pension", is quite complicated and difficult to understand for most people. But let's break it down into simpler terms.

"Imagine you have a giant piggy bank that everyone in the country puts money into when they work. This piggy bank is called Social Security. When people get old and stop working, they start taking money out of this piggy bank to pay for things they need.

In the past, there were a lot more people putting money into the piggy bank than taking money out. But over time, things have changed. People are living longer, which means they're taking money out of the piggy bank for a longer time. And, there are fewer people working and putting money into the piggy bank because families are having fewer kids than they used to.

So, we're reaching a point where the piggy bank is getting emptied faster than it's being filled. Those managing the piggy bank have calculated that by the year 2035, there might only be enough in the piggy bank to pay out 75% of what each person should receive.

This doesn't mean the piggy bank will be completely empty, it just won't be able to give everyone the full amount they were expecting. To fix this, we could find ways to put more money into the piggy bank or change how much we give out."

As you can see, our government recognizes the problem but hasn't presented a clear solution yet. Here are a few realistic solutions they might implement:

• Increase payroll taxes, which means you will pay more taxes now than before you retire.
Raise the retirement age, meaning you will need to retire after 67 to get the same amount you would get today.
• Change the benefit calculation to pay even less to people who earn more money.
• Implement other methods, which are more complex and will be explored in future articles.

This is the second problem we face: our government's complex and confusing Social Security system is running out of cash, and you might end up paying more in taxes to receive less in retirement.

2.3 Problem #3: You Cannot Opt Out of Paying Your Taxes.
Yes, it's an issue we're all familiar with. You MUST pay taxes. I've included this point to highlight what could happen if you had the CHOICE not to pay the 6.2% Social Security tax but, instead, invest it long-term using a professional advisor.

Let's look at what you could earn if you had this choice:

• Age 18-67, salary of $5,000/month on average. You could earn $2,266,830 (8% annual return), $4,857,967 (10% annual return), or $10,741,820 (12% annual return). You would have paid only $182,280 in taxes over 49 years.
• Age 18-67, salary of $8,333/month on average. You could earn $3,773,176 (8% annual return), $8,086,174 (10% annual return), or $17,879,932 (12% annual return). You would have paid only $303,800 in taxes over 49 years.
• Age 18-67, salary of $12,500/month on average. You could earn $5,667,074 (8% annual return), $12,144,933 (10% annual return), or $26,854,544 (12% annual return). You would have paid only $455,700 in taxes over 49 years.
Pause for a moment and read these numbers again. Now, compare these figures with the ones provided by the government. Can you feel the difference?

Title: 3. Ways to save for retirement

Having realized that it will be tough to live comfortably without retirement savings, or to put it more realistically, to "survive" only on Social Security, it's important to consider other options. I personally believe it's healthy to work at any adult age, but if health reasons prevent you from doing so, you should plan to have something to live on.

Let's look at some funny, albeit impractical, ways people think they can save for retirement:
• Stashing money under the mattress. You'd be surprised, but some people in this era still believe that saving money in a bank or investing is high risk, so they prefer keeping good old cash closer to their "hearts". This idea is terrible because inflation will devalue cash every single year. For example, if you had $100,000 saved in cash in 2020, it would only be worth $85,730 by 2023 - that's a 14.27% inflation rate over three years.

• Find a money tree - some people say it exists, so just keep looking!

• Marry a millionaire - just make sure they don’t make you sign a “prenup” before you tie the knot.

Now, let's get serious:
• 401K, 403B, or IRA plans. These are employer-sponsored, self-employed (SEP IRA), or traditional retirement accounts. We can't choose NOT to pay Social Security taxes, but we can steadily invest in these accounts and retire peacefully.
Pension plans. These aren't related to Social Security and are quite rare, but some employers still offer them.
• Savings Accounts. You can keep part of your retirement savings in cash and have it ready when you get closer to your retirement age.
• Investment Portfolios. These are non-"retirement accounts", but they offer options for those looking for more ways to save for the future using stocks, bonds, ETFs, etc.
• Real Estate Investment. You can opt to have rental properties that can generate extra income for your retirement.
• And many more. There are more ways to do it, but they are much more complicated, and I've decided not to list them here.

Title: 4. Importance of Acting TODAY
Do you remember those millions you could have if you invested by yourself, as mentioned in the previous chapter? That's still a possibility. While you can't avoid paying your Social Security taxes, you CAN and SHOULD invest in retirement accounts.

The most important part? You should start tomorrow, if not TODAY already. Time plays a crucial role in investing - because of the power of compound interest.

And imagine if you teach your kids to invest as early as 18... how much could they retire with? 5, 10, or maybe 12 million dollars? The amount doesn't really matter. Money won't buy happiness, but it will buy peace and stability.

No matter what society tells us or what our hopes are - retirement is a number - the number of money we need to save to retire, regardless of whether we are 40, 50, or 67 years old. Just remember - whether you save and invest $50 or $500 a month, JUST DO IT.

If you need help or don't know where to start - reach out TODAY and let's get to work together !