Sep. 09, '22:
I've spent way too much this month.
How can I save for a house if I'm spending my money on weddings?
In four weeks, I've attended three different weddings, all three with a date. They're all my cousins on my dad's side, but T.G., none of them are marrying my dad's cousins. We're not that type of family.
Weddings are a great time to celebrate, as anyone knows, but they're also super expensive. I chose the cheapest (but still safe) lodging option for these three weddings. However, even only paying for the lodging and the gift, the total still came dangerously close to $1300.
I'm not made of money, so I had to make some sacrifices.
I was trying to figure out where the money would come from.
Should I not go to the weddings or cut the money out of the gifts?
Would I let my credit card payment come short and get charged the +20% interest rate?
Would I take out a short-term bank loan at +9% to cover the loan?
Would I withdraw money from my emergency fund/car savings account/house fund?
Would I ask my parents for an interest-free loan to cover the cost until I get paid?
None of these options are perfect, but some are worse than others. Let's review the choices, shall we?
As you can see, I went to weddings. It was the first time my partner was meeting my extended family, and I was stoked for them to meet her. Their first impression of her on the line, and also my conscience, skimping the gift/or not attending was not really an option. Would I let my credit card take the hit and pay it back next time? Absolutely not. Beyond this being the least short-term financially savvy move, it would have also been a terrible move for my credit score.
I'm looking to buy a duplex or a home I can rent after moving. Still, the problem is that I need a fantastic credit score to keep the interest rate of my loans down as low as possible. Especially since I have never taken any large loan out, like a car payment, I need to make sure my credit report is bulletproof. Missing a payment is a death wish for my long-term financial plan.
On to option three: short-term bank loan. This is way more financially sound than a credit card loan, but the "transaction cost" is higher. That's to say, it's harder for me to go out and secure a loan than it would be to let the credit card loan me the money for the amount I'm short of. As we discussed, that's not a wise option for other reasons. So while the bank loan may be the cheaper loan, it still wasn't an accessible bridge to cross this obstacle, widening as the due date approached.
In personal finance, one of the first things you're supposed to build is a safety net - an emergency fund! Another truism about personal finance is that no one size fits all.
My emergency fund meshes in with my car savings and home downpayment funds. Ideally, I'll split these out further down the line. Right now, I invest the funds and automatically contribute to the S&P 500! In the long term, this investment should achieve around a 7% ROI after inflation of around 2% annually. So, I approach taking $1 away from here as a 7% interest loan, less than the 9% bank loan, and way less than the 22% credit card loan.
As you can tell, this is the option I went with. I'm 24, so I do not want to take money from my parents, mainly because they're people too. I didn't want to put them in a position where they might have to take out a loan or anything to avoid saying no to me. I don't think that would be what happens, but just like your chances of being killed by a cow right now, they're low, but never zero.