Companies hatch new and clever money traps every single day. Companies always come up with creative solutions and find a way to trap people in to buy more things customers don’t need. There are many hare-brained schemes that pop up in corporate board meetings.
The list below outlines the ways companies trap more customers. Note that these are NOT money mistakes but are rather traps that people fall into. What are money traps?
They are situations that companies lock a customer in for a long period of time with limited chances of reversal. The long term commitment traps and binds the customer for a long time.
When there’s money on the table, you can count on companies to come up with very cunning strategies in order to make a profit. It’s amazing that companies continue to come up with new ways to make more money off you. They will always come up with more easy and convenient solutions to finance a customer’s purchase.
Thankfully, I haven’t fallen into a long term legal commitment with a company yet. Therefore, I’m not in as bad of a spot as I could be if I signed a legal document committing to something. There are actual products out there that you legally cannot back out of if you change your mind.
I don’t know how that practice is legal. In general, if a sale benefits the overall economy, the laws usually favor companies who are helping prop up the economy. Consumer advocacy is not at most government agencies’ top priorities. Their position is the customer is out of luck until the customer can prove otherwise.
You are fighting an uphill battle before the fight even starts so you have to watch out and protect yourself.
10 Money Traps that Everyone Can Fall Into
One money trap that you don’t have to avoid is to SMASH that social share button and post to your favorite social media! So your friends can avoid them as well and we can lead wealthier lives without any headaches down the road.
Some of the traps will actually legally bind you so it’s better to preempt any mistakes rather than try to cure them.
So with that said, let’s get into it.
1) Timeshares Are Overlooked Money Traps
Do you know what a timeshare is? Timeshares, a.k.a. vacation ownership interests, are your share of the allotted time in a property. So let’s say you own a timeshare of a property in Las Vegas. Let’s say you bought a week of timeshare to use at your favorite vacation property in Las Vegas.
That means you have the right to use that property for the share of the time you purchased for, thus a “timeshare”. Which sounds really great right?! I mean, you were going to make the trip there anyway, why not save money on a lousy hotel and go that route? Not so fast.
Timeshares are notoriously difficult to cancel or get out of the contract. The contract legally locks the customer in, usually for life. In the event of passing, the children usually inherit the timeshare. Timeshares are financed similar to mortgages but the catch is that you have to pay annual maintenance fees.
Every year, you have the obligation to contribute to maintaining your timeshare property, regardless if you use it or not. It is completely legal for companies to lock you into this kind of contract. There are timeshares selling for a dollar because people don’t want to deal with the maintenance fees.
This is one of the most overlooked money traps you will ever see in your life.
2) Free Trials
Isn’t it sketchy how companies offer “free trials” yet they ask you for your credit card? It’s one of the most common money traps you’ll see today, especially as companies provide more digital products. They are banking on you forgetting to cancel the service that you request.
When you forget once and end up paying for a month, then you start to say “eh, what’s another month of keeping it?” and so on until it’s been a year. Most people are not diligent or have the mental room on top of their already busy lives to remember to cancel. That’s how they pull you in and trap you.
It sounds like an innocent and small request because, well, it’s free! However, there’s a more sinister and business reason for offering it for free. They want to catch you and commit to something that you don’t want to commit to. It sucks you in, don’t let it happen to you. You know better than that.
3) Payday Loans
This is the biggest money trap and scam that’s ever existed in all of history. Payday loan interest rates range from 400 – 500% APR! That’s the biggest scam in all of mankind! It’s near impossible to get that kind of returns in the stock market, which should be riskier than debt.
Yet, the law allows payday loans to legally charge that much for some reason. This is also one of the reasons why it’s more expensive to be poor than rich. The poor need that money to solve their short term problem and don’t understand financial literacy as well. So they end up going with a solution that fixes their problem temporarily.
After a week or a month, they are in for a rude awakening that they fell into a trap and dug themselves into a bigger financial hole than they already were in. Money traps are hugely detrimental, don’t get sucked into the allure of “easy money”.
4) Wanting More Money is the Ultimate Money Trap
Do you find yourself wanting more and more money no matter how much money that you have? That insatiable desire for money is a bad thing. Why is that? It’s an endless pursuit with zero ending. If you didn’t know already, acquiring more money has no ending.
Even Jeff Bezos still has the potential to make more money. As the richest person on the face of the planet. When you find that you are not content with what you have and are chasing the next big high, you fell into a huge trap. The only person who can get out of it is you.
Getting more money has no ending. This is a money trap that you can get out of but no one can get out of it for you. You have to do it yourself and practice intrinsic happiness instead of looking for the next big thing. More money is not going to make you happy.
5) Mortgage Approvals
Banks approve you as the absolute highest amount that they think you can afford. They don’t care about practicality, they care about how much they can lend you. Mortgage approvals are money traps because they approve you for more money than you should practically take.
Instead, use a reasonable amount of your mortgage approval. NEVER use all of it, that’s a recipe for disaster. Your house is not going to be the only purchase you’re going to make in your life. There’s no need to concentrate so much of your position into one single thing.
Just because you can buy that house does not mean that you should buy the house. Mortgages aren’t bad but utilizing the maximum amount you were approved for is a horrible financial decision.
6) Creative Financing Structures like Rent to Own
In general, the more complicated a financing structure is, the more wrong it is. Rent to owns are a complex structure that allows you to live in a domicile with rent as payment. Then after some time, if you made enough of a payment then you suddenly own the property. Hurray, right?!
Wrong. It has huge risks. It’s the landlord who ultimately has the house by the end if you don’t make enough payments. You bear all of the risk with rent to own. It’s such a bad deal that the Federal Trade Commission warned that it could be a downright scam.
Anything that is complex and goes outside the norm of a standard deal that you hear about is usually a bad idea. It’s better to avoid these deals, especially if you haven’t done the necessary legwork to understand it beforehand. Doing no deal is better than doing a bad deal.
7) Taking on Debt to Finance Your Wants
If you take on debt to finance your wants, it means you are living an excessive consumerism lifestyle. Not only do you have to pay additional interest rates on top of what you want to buy, you have to spend time researching banks to get a loan from.
Never take on debt to finance your wants. Debt even ruined companies that had a solid business plan and product. Instead of depending on debt, ask yourself, “how can I afford this”? Then come up with ways to bring in more income to afford the lifestyle that you want.
Your wants are not a necessity. You don’t need to buy that extra thing. You’ll live on just fine. Don’t get trapped into money traps for the sake of acquiring more stuff. You’re not going to be happy by the end of it all, anyway.
8) Get Rich Quick Schemes is a HUGE Money Trap
Anytime that there’s an MLM involved, you think “money traps!” They can be lucrative for the 1% who can recruit many people to join and/or sell like no one’s business. It is not lucrative for the 99%. Think you’ll be a part of the 1%? While it is absolutely possible, the odds are 99% stacked against you.
After you join, good luck getting a refund if you find out this isn’t for you. That’s how they reel you in and get you. Once you give up and agree to something, they don’t want you to change your mind. Don’t get sucked into get rich quick schemes. You don’t build wealth quickly. You build it over years and years of investing and hard work.
The promise of riches beyond your wildest dreams in a short while is just a marketing gimmick to lock you into doing something you shouldn’t want to do. I attended a couple of these seminars myself. While I understand it can be lucrative, it will take time away from you.
Spend time on things that has an even bigger impact than get rich quick schemes.
9) Timing the Market
Money traps and timing the market go hand in hand. Your decision traps into whatever decision you make. If you made a wrong decision, you are trapped. If you get back in, well, you lose twice. You lost the time it takes to make up for the gains you missed out on. You also missed out on the gains had you just left your investment alone.
There are more chances for you to make the wrong decision than to make the right decision when buying or selling stocks. Don’t put yourself into a decision that traps you. There’s no changing your mind because the market doesn’t wait for you. It keeps on going whether you join in or not.
Even if you make the right decision by selling when the stock is down, most people just wait and wait even longer until the market ends up recovering. Then they think they’re a genius and waits even longer and watches as the market goes even higher. Don’t be one of these people. You’re better than that.
I’m not your financial advisor and you definitely should do your own research. I’m just saying that buy and hold is a surefire strategy to acquire wealth, though not guaranteed.
10) Any Contractual Legal Long Term Commitment is a Money Trap
Money traps give you no opportunity to change your mind. The key is optionality. Once companies take that away, you have no more power. It’s one thing for companies to make you think that you can’t walk away. It’s another to actually legally take that option away from you.
A surefire sign of money traps is that your options become more limited as time passes on and you learn more information. You should ALWAYS have the option to back out as a general rule of thumb. There are instances where it’s fine if you don’t.
Things such as buying a home prevents this from happening with funds in escrow. However, most purchases should readily have a return policy available. The ones who don’t stand by their product is when you should start asking questions and think through whether the logic makes sense or not.
And no. You shouldn’t “trust them” and just give your money away freely.
Money Traps Can Crush You
Money traps are long lasting, usually legal, commitments that has the chance to lead to your downfall. I didn’t even know that so many traps exist in the market until I started making spending decisions myself. Be a smarter and more informed consumer.
As companies get more clever and come up with clever solutions that gets people to pay more money, you have to as well. Companies will do or say anything that’s legally possible in order to get you spend more money on their products and come back for more.
You have the money. That means you have the power. Don’t get sucked into money traps when you literally have the upper hand. You don’t need their products because you lived just fine without it so far. However, companies need your money in order to survive. They need you, you don’t need them.
Don’t sign on the dotted line without 100% understanding what it is you are actually signing.
If they tempt you, all you have to do is say no and resist the temptation. Move on with your wallet intact. Not only will you declutter, you will have more money at the end of the day. You win more ways than one with one simple word, no. When you say no, companies want you even more now.
That’s when the real fun starts. Companies start offering amazing deals the likes of which you’ve never seen. That’s when you swoop in like a vulture and buy whatever it is they’re selling at fire sale prices. Be the hunter, don’t be the hunted.
It takes a little bit of effort and it will be difficult at first. Afterwards, you’ll get used to rejecting them on a daily basis. Life will be good then.
10 Money Traps List:
- Timeshares are overlooked money traps
- Free trials
- Payday loans
- Wanting more money is the ultimate money trap
- Mortgage approvals
- Creative financing structures like rent to own
- Taking on debt to finance your wants
- Get rich quick schemes is a HUGE money trap
- Timing the market
- Any contractual long term legal commitment is a money trap
Free Trials can easily get you. I always set a reminder to delete it though, my wife doesn’t though! haha.
Ha! It’s difficult to remember when we have all this other things going on!
Free trials are always money traps. I had one with a magazine subscription.
Yep. It’s funny how they say “free trials” and they require credit card information. Is it really free? Hmm…