How to arrange an automatic decrease in annual income

joyfulguyAugust 20, 2003

Suppose you've been in the habit of paying balance owed on credit card bills in full, monthly.

Suppose you take a friend to a restaurant (if non-deductible), go on vacation, or use it to pay for some other consumer item (i.e. something that you buy now and it's value is fully used up right away).

Being a bit short of money, you don't pay off the full amount owing, this month - and let that balance carry over the end of the year.

What you've done is spent more than you've earned, this year.

You'll have to pay it off next year. So that will leave you with less effective after-tax income, next year.

Not only that - you'll have to pay interest on the debt, until it's paid off.

Resulting in an additional reduction in your income, next year.

So - instead of enjoying a raise, next year - you've arranged an actual reduction in next year's effective income, income available to spend.

If you use it to buy a car, home or dining room table (capital goods that will provide a benefit to you over an increasing number of years, i.e., car lasts fewer years than home or table, loses value faster), the illustration doesn't apply, as you'll enjoy a benefit from your purchase in later years.

You might have been able to arrange a loan at more advantageous terms than using credit card, however.

I hope that you enjoy a raise next year, not a reduction in effective income,

joyful guy

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A couple credit cards are offering a far better rate than my current construction loan, so I am paying between 0% and 1.9% for some appliances and my utility installation. All of which will be paid off as promptly as possible, 3 months maybe? Almost no way to get through this process without dipping into my outstanding (better than 90% of population) credit.

    Bookmark   August 27, 2003 at 4:44PM
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"Financing" something that will be in the septic tank in under 24 hrs. is a, "no brainer". Nor would I pay for a vacation that way, either... but memories of travel and vacations can be very worthwhile investments, too.

You've made a valid point, though, and when you put in those terms more people will understand the high price of immediate gratification.

    Bookmark   August 30, 2003 at 12:58PM
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Hi nycefarm,

I've heard of e-mail, e-business, e-books and other similar issues - all done on the internet.

But how does one e-farm, nyc?


When I was a clergyperson, I felt that much of my task in interpreting a very familiar system of knowledge was to help people to look at it from somewhat different perspective(s) than they were used to.

For example, if a farmer on his tractor on Tuesday asked hiself,"What was Ed getting at in that sermon on Sunday?" and did some extra thinking on the issue, that suited me fine.

Similarly, as a financial planner I was in most cases talking to clients about familiar material. I tried to help them to look at various issues from a different perspective than the one(s) that were familiar.

I felt that if I left them thinking about things as they had before we started, I had not earned my compensation.

There was some self-interest involved, as well - if they felt that they were not receiving valuable material, different perspectives, increased skills or motivation, etc. from me - they wouldn't continue to pay me for consultations.

Hope that (as you live in the Northern Hemisphere) you're enjoying fall.

joyful guy

    Bookmark   September 15, 2003 at 3:24AM
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In addition to which ...

... you did it to yourself!

Anyone interested in shooting him/herself in the foot?

Hi again Chelone,

I like your comment relating to the septic tank: vivid. Arresting! Effective (one hopes)!

ole joyful

    Bookmark   March 10, 2011 at 6:12PM
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"Buy now ... pay later".

Not so sweet ... if the employment vanishes into thin air in the meantime.

ole joyful

    Bookmark   April 18, 2011 at 6:55PM
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