Have you ever thought about how much control over your financial life you give to companies when you sign up for things like cable, cell phone contracts, Internet access, loans, or credit cards? When you engage in most financial transactions, you are letting someone else have a little bit of control over your financial life. The cable company can drop channels and raise rates. The cell phone company can extend your contract when you buy a new phone. The credit card company can increase interest rates and lower your credit limit without any input from you. All of these actions take control away from you and give it squarely to the company from which you’re buying services.
It probably doesn’t seem like a huge deal. So what if the cable company drops a few channels or increases your rates a few dollars? So what if they extend your contract when you order that new HD receiver? So what’s a few hundred (or thousand) less available on your credit card? So what if the cell phone contract comes with a huge penalty for early termination? Taken separately these aren’t big deals. Taken individually they can be annoying, but not detrimental to your
However, many of us are involved with several of these types of transactions and contracts. The problem with ceding control over so much of your financial life to others comes when you are faced with a situation where you need all the control. When you lose an income or face some other crisis that requires major financial cutbacks and changes, you discover that you have no control. You can’t just cancel the cable because you’re locked into a two year contract that will cost you $200 to break. You can’t downgrade the cell phone plan because you have a contract with them, too. You discover you could really use that $2,000 that you lost when the credit card company lowered your limit. And you could really use your old interest rate of 5% rather than the 25% you’re now paying. You need to get out of your car lease, but there are big penalties for early termination. You have to keep paying on the furniture you bought with the same as cash offer. You’ve given control to these companies and now you have no room to make the changes you need in order to gain breathing room. Sometimes negotiating and bargaining work, but more often than not you’re just stuck.
I tend to be a bit of a control freak. I know this. I hate it whenever I feel like someone else has total control over a situation. This is one reason why I am very careful about what I do with my money. I don’t like giving any more control to others than I have to because I know the day might come when I need all the control. I want to preserve my ability to make any decision and take any action necessary to save my finances if I have to.
Sometimes a contract is inevitable. Sometimes I have no choice but to cede control to someone else. Whenever possible, though, I balk at contracts and loans. I keep a prepaid cell phone because I don’t have to sign a contract. If things get tight, I can just stop paying for the monthly minutes. One of the side benefits of dropping cable has been that I no longer have that contract and the cable company no longer has the ability to “extend” my contract when I get new equipment. By avoiding loans and credit card debt I get to retain control over where my money goes each month. Whenever possible, I try to keep as much control possible by not signing contracts and not obligating my money to others every month.
This strategy has come in handy more than once. We’ve been through layoffs and other crises and each time I’ve been able to quickly take control of the finances without having to jump through some company’s hoops. It keeps an already stressful situation from becoming an untenable one. That’s not to say that you should never take out a loan or a contract. Sometimes it makes sense. But be careful about getting involved in too many situations where you’re giving control to others. Too many contracts, leases, and loans will make it impossible for you to deal with a financial crisis because you won’t have the control that you need.