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Don’t Buy Something Today With Tomorrow’s Money

by Derek

Have you ever purchased something that you really didn’t have the money for? One of the more common examples today is the automobile. Sure, traveling back and forth to work is necessary to pay the bills, but if you only have $2,000 in your savings account, what makes you think that you deserve to buy a $16,000 car? I am a strong advocate of a debt-free lifestyle and I often discourage people from making a purchase today with tomorrow’s money.

Credit Cards

Think of all the potential items that people tend to purchase on credit: vehicles, furniture, lawn equipment, appliances, and sometimes even personal accessories. Do any of these items increase in value over the years? No! In fact, all of these material goods only decrease in value, making the purchase even more expensive. There are two main reasons why I think buying goods on credit is a terrible idea: (1) Interest charges and (2) an unknown future.

Don’t Donate Your Money to Interest

When all of this stuff is bought on credit, the banks aren’t giving you a hand-out for the purchase. Nope, those massive corporate buildings are built with your hard-earned dollars, but you hardly notice it because you pay out only a few dollars at a time. Over the years though, all of your interest payments start to add up. That $2,000 washer and dryer set actually cost you $2,800 after the interest. Your car cost you $18,200 even though the sticker said $16,000. And don’t forget about your furniture that’s falling apart (because you brought it home 5 years ago)! After you make that last payment, your total amount paid out is $2,600 instead of the $1,999 deal you thought you were getting.

Sure, it doesn’t sound like much when you look at it individually, but let’s add up the interest payments from your car, the furniture, and that washer and dryer: $2,200, $601, and $800 respectively. All together, you’ve paid $3,601 on interest. That’s basically the equivalent of throwing a dollar bill into the fire every single day for 10 years. I don’t know anyone that would actually burn their money, but there are plenty of people that throw their dollars away on interest. I urge you not to be one of these people.

Be Prepared For a Rocky Future

When you purchase all that stuff on credit, you’re agreeing to pay back your debt over a long period of time with small, equal payments each month. Everything seems manageable for a while, but when you attain 3 or 4 large items that you bought on credit, suddenly your payments rise to nearly $1,000 a month. Factor in a house payment, insurance, food, gasoline, and clothing, and you’re pretty strapped for cash each month.

“Oh well,” you think to yourself, “Money is pretty tight, but I’m surviving.” And then the unthinkable happens. Your work is downsizing and your job is no longer needed. Now you’re left with a pile of bills and not nearly enough money to pay them all.

Since you did not fully own any of your possessions, they are all taken away from you – the furniture, the washer and dryer, your car, and yes, even your house. You are left with nothing – all because you decided to make your purchases with credit.

What is your view of debt? Have you ever bought something that you didn’t really have the money for?

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{ 14 comments… read them below or add one }

SB @ One Cent At A Time March 28, 2012 at 8:28 pm

We forget that creditcard money is not free money, we need to pay them back an with interest.

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Derek March 30, 2012 at 8:34 am

You’re right SB. It’s easy to just buy whatever we want these days, and not truly know what we’re paying!

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SansMoneyStress March 29, 2012 at 6:25 am

A much needed reminder for most. Unfortunately, the use of credit is also a much needed necessity for most as well.

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Derek March 30, 2012 at 9:26 am

It is unfortunate isn’t it? Plus, it a terrible trap to get out of once you’re in.

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SavingfromScratch March 29, 2012 at 6:35 am

Couldn’t agree more, Derek. Credit Card debt terrifies me. Stockpiling the savings pays off when the unexpected happens (or you decide to splurge a little). I have a heinous VISA bill this month, but I’ll easily be able to pay it off because I’ve socked away some reserve savings.

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Derek March 30, 2012 at 9:27 am

It also pays off if there’s an opportunity to invest! I can’t wait for the day when I have $50,000 stashed away as a “just in case the right opportunity presents itself.” ;)

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Thomas - Ways to Invest Money March 29, 2012 at 9:20 am

I would agree that buying something with money you don’t have is not the best way. Its true however that there are times when you have to pay for something and just dont have money for it. However TVs, clothes and etc are not something I would consider a have to purchase. Its unfortunate that so many people live this way and will never change simply because they were never taught better, dont want to learn or just dont think anything is wrong with what they are doing in the first place.

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Derek March 30, 2012 at 9:28 am

An emergency fund is essential in these cases. If an emergency fund was in place, nothing would ever need to be purchased with credit!

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John March 29, 2012 at 3:57 pm

The only thing I’ve bought that I haven’t had the money for was my home (got a mortgage). That being said, I have had credit cards, but always paid them off at the end of the month. But then I realized that I had a real opportunity to go into massive amounts of debt with credit cards . . . so I cut them up and now rely solely on cash and debit cards.

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Derek March 30, 2012 at 9:29 am

Sounds like we’re pretty much in the same boat, but I am aggressively paying down the mortgage as well. I just hate all debt in general.

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ShortRoadTo March 29, 2012 at 6:37 pm

Great reminder. In this cashless society, we forget that we have to pay that money back with interest.

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Derek March 30, 2012 at 9:30 am

Ha, no doubt about that. When you hand over that credit card, it’s really not that painful is it? I’m considering using cash more often, just so I can experience it leaving my pocket. I’m sure that even I would spend less.

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The Saved Quarter March 30, 2012 at 11:38 am

Boy, it’s like you’re writing right to me! We’ve been shopping for a new minivan and considering taking out a loan. You’re so right thtat I shouldn’t be spending tomorrow’s dollars today, though Narrow Bridge offered another idea here (http://www.narrowbridge.net/zero-percent-financing/):

” if you have time to plan, you can sometime qualify for 0% finance. My truck payment comes out of an interest earning account (which has enough money in it to pay for the truck).”

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Derek March 30, 2012 at 7:22 pm

Well, I wouldn’t want to start messing with borrowing at “0% interest”, but if you’re able to pay for today’s minivan today, then I’d say “Go for it!” We’re actually in a similar dilema over at http://lifeandmyfinances.com/2012/03/should-i-buy-a-car-and-skip-our-extra-mortgage-payment/

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