BDSM in Finances?

No I am not going to change the blog to a financial bondage site (at least not yet).

The metaphor of handcuffs for many of the decisions in life and in our finances is quite apropos. Many of us struggle with decisions that we have made that force us to stay with the status quo in our lives, and here are the types of handcuffs that I think we struggle with every day.

Golden Handcuffs

Gold Handcuffs

The first time I heard of this concept was in the glory days of Nortel, where folks had Stock Options in the company, and thus were bound to stay (at least for a short period of time), until those options were exercisable. This was how most high tech companies used to work (not sure how they work now), but the opposite side of those bonds were, that if the Company stock dropped below the strike value of the options, they were no longer very good handcuffs (the analogy I heard was The Cuffs just fell off, and I am out of here).

Other Golden Handcuffs are things like good pension programs, that someone has a great deal of time as a member. That is the story you hear from many Civil Servants is they don’t dare move to the Private Sector because of their Pension benefits and such. These handcuffs are not as binding, if there is more monetary payment used to entice folks away, but still an important impediment to change.

A good benefits package for an employee has been known as a good employee retention program as well.

A low rate Mortgage can be Golden Handcuffs if rates suddenly sky rocket, but I’ll discuss the converse in the next section as well

Nasty Standard Handcuffs

These are the thornier binding programs that will not let us loose (financially) without causing a lot of pain and damage.

Standard Smith & Wesson Handcuffs

Typically attempting to extricate yourself from these decisions will cost a fair amount of money.

Cell phone contracts are an excellent example of this kind of punitive retention program, where the customer gets a better deal on a phone, but then must stay with their service provider fora period of time. I know many folks (including me) who regret putting on these handcuffs, but now must live with our poor decision (or pay the price of leaving early).

Some might argue that long term Mortgages can be like this as well. As most of my readers know when I bought my first house I paid 11% interest on my mortgage for 5 years, because at the time that seemed like a great deal, but as the term passed, it was obvious that I had made a blunder financially. The only way to extricate myself from it was to either blend and extend my Mortgage or break the mortgage and pay a 3-6 month interest penalty (depending on when I wanted to break it). In the end I ended up leaving the Barbed Wire Handcuffs on for the entire term.

Car leasing agreements are somewhat like this as well, you are paying a lower amount for a car, but it is very hard to break the lease without some severe penalties (depending on your agreement). I don’t lease cars, so I never really understood the attraction for this particular financial bondage device, however, I do know many folks who think it is a great idea.

Thumbscrews

Thumbscrews for a Little Extra Motivation

These financial torture devices really are quite despicable, yet some of us gladly stick our thumbs into them without thinking about the long term effects (or thinking it won’t be that bad).

Zero balance credit cards and don’t pay for 6 month credit deals are notorious examples of these financial pain infliction devices. You start off with the best intentions to pay off the balances, but you forget to make a payment, or you simply don’t choose to pay it off and the device starts to inflict pain. You end up paying a much higher interest rate on the complete balance you had, and now you will have problems ever extricating yourself from this financial trap.

The entire low rate mortgage debacle in the U.S. was based on this kind of excruciating financial bondage mechanism.

I hope the only handcuffs you wear are Golden ones. Please make sure you know what your cup of tea is when it comes to these financial bondage devices (better still steer clear of Financial Bondage completely).