Much of my view towards money and spending came from watching my parents. I think this is pretty common. We learn good or bad habits and then we either follow in their footsteps or do the exact opposite. It is a common theme with kids and parents.
So, while I didn’t end up totally following my parent’s good examples, I still credit a lot of the good habits that I have to them. (Not saying all my habits are good, but some are.) Of course there is also the fact that I married young, while still in college, and so some ways of spending came from my husband and his history as well.
One message I received from my parents loud and clear — NEVER carry a balance on a credit card. Luckily I didn’t get one when I started out in college, I bounced a couple of checks those first few years and that was a good lesson to learn about managing my money. So it wasn’t until after we got married that I figured we should get a credit card — in case of an emergency on a road trip — or to rent a car.
We got a card with a small annual fee since we didn’t have much credit history but it had a little cash-back incentive also. At first we only used it a little bit each month to keep it active and build up credit. But after a while we started using it for almost everything, especially gas and groceries, so that we were at least getting the cash back, and always paid it off every month.
A little over a year into our marriage we needed to buy a vehicle that we could fit a car seat in, ha! We traded in our pickup for a (very used) mini van and rather than take out a loan we put the balance on our credit card. Why? Well it was less than our credit limit and we knew that we could pay it off within three months. So Yes, we did pay some interest that time but it was a lot easier than getting a car loan for just a few months and we knew exactly when we would be able to pay it off. I think we may have done something similar 2-3 more times over that last 20 years but other than that we have never had any credit card debt.
Now, don’t let this story fool you, we have not made perfect decisions over the years by any means. There was a bankruptcy thanks to the real estate crash, but that’s a story for another day.
In the months when money was tight I was much more careful not to use the credit card and I would just stick to using a debit card. It’s always better to lose out on a few dollars of cash back than end up paying much more in interest. Usually my cards have had interest rates that were quite high, but that never concerned me since I would almost never end up paying them.
What exactly did I learn from my parents? Credit cards are tools to be used appropriately. They are a dangerous tool much like a chain saw, in the right hands it does the intended work without injury, but if in the wrong hands…. credit cards are great for helping to improve your credit score, to be used in case of an emergency, and to get rewards like airline miles or cash back. But without a clear plan on how to use them, well we have all heard the stories of how that can end. So yes, they can be a trap, but if you know what you are doing you can actually make money off of them instead.
How about you? What did you learn from your parents about money and credit? Did you end up following their example (good or bad) or going the opposite way?