With all the depressing talk about the economy lately, there are some rays of hope. Some folks are saying that if it becomes harder to get credit it may actually have a positive effect on our culture. People may invest more wisely and save up for things. Imagine that!
We feel so entitled to have things right now in our culture. We feel entitled to buy a house--even though we don't have a blessed cent to put up for it. We feel entitled to have the latest flashy thing in the store window, whether we truly need it or even if we'll still want it when we wake up the next day. We think getting that TV for "zero money down" is an amazing deal--at least, it seems that way. But looks can be deceiving.
Erin told me about someone who did not buy a dining room set until she had the money saved up. Until then, she and her family ate dinner on the floor. Pondering this, I realized there isn't any furniture that you actually need right now. Sure, 30 years eating on the wood floor would be difficult. But a few days? Weeks?
The grim reality in our culture is that our need for things right now has actually made us have less! We think we are ahead of the game, when in reality we are far behind. Let's say you found a dining room set for $500. It seems like a good deal, so you buy it on credit. But how much do you actually pay for it? By the time you pay the interest, fees, delivery (because you couldn't wait until you were able to borrow a truck or double-up with somebody else) you might be paying $600... $700... more?
You would have paid $500 if you saved up for the dining set. Your need to have it right now made you pay an extra $200--money you could have spent on something else. That's a nice lamp you're not going to have. What would have been the harm in waiting? 6 months eating dinner Indian-style on the floor is not torture. It may actually be a cute story to tell your kids in the years to come. God forbid--it may actually be a fun adventure!
I should also mention that the woman who waited for her dining set is a wealthy woman. It is smart decisions like this that got her where she's at. The rest of us have an addiction to stuff. We need stuff and we need it now. The paradox is that we end up with less while the woman who severed her unhealthy attachment to stuff ends up with more.
Credit is a wonderful thing, but it should only be used if the situation meets one of these criteria:
A. Will the benefits outweigh the costs? Let's say you run a gardening service, but you do not have money to buy a rotor tiller. Instead, you have to dig gardens with a shovel by hand. You end up digging up 2 gardens by hand instead of rotor tilling 10. In this case, it would be totally worth it to buy a rotor tiller on credit. You can increase your revenue by 5 times with this one smart investment which would no doubt cover the interest and them some. In the case of the dining room furniture, there is no real benefit to having it right now.
B. When emergency dictates it. There are times when you just gotta have something and it's for real. You may need fly to Bolivia to investigate your son and the commune of "happy, loving people" he joined. However, this point is really an extension of the point above: The benefits need to outweigh the costs. In this case, the benefits are not material but still valuable.
People can be richer if they just slow down a bit. Every time you use your credit card, you are actually taking out a loan. You will pay for it eventually. If you don't have enough money to buy it now, what makes you think you are going to have enough money to pay for it in the future with interest on top of that? You will have to severely restrict your lifestyle to accomodate these unwise investments.
The rotor tiller investment is wise because it will enable you to increase your income so that you will more than compensate for the interest. You should only go into debt when it will enable you to expand your resources enough to cover the extra cost of having it now. If you use this criteria every time you swipe yourcredit card, you may find yourself swiping it less.
One person can have a dining room set and a lamp. The other person has just a dining room set. Just think how these people are going to differe after 10 years of these kinds of decisions! One may have a house decked out with exquisite furniture (all paid for), while the other is scrambling to pay interest on the few simple items they got on their so-called amazing zero money down deal. They first person gets two items for every one the other gets.
Most Americans live in a fog where we think they can have it all and never have to pay. As Al Gore says, America may be entering into a period of consequences--in the environment, in foreign policy and in personal finance. The loans become due whether we pull the covers over our head or not.
Take it from me as someone who is living much humbler than I should. For the past few years, not only have I been paying back all my credit debt but also paying a couple hundred dollars each month in interest (thankfully I'm near the end of it). I am living like I'm making half the money I'm making. I believe in simple living so I'm not too upset, but that is money I could have spent for charities or else to save up for a house or retirement.
For most of us, there is no bailout. We end up paying it all back. With interest. All for junk you can live without.
I play the credit system... I have the money for something NOW before I buy it (always have, always will... never have had credit card debt or anything like that). If they offer me 90 days same as cash, I take it... why pay now when I can pay later, even if I have the money? Why loose all that money in one swoop?
ReplyDeleteI just did that with my windows. I had the money to pay for the windows I just replaced on my house... but they offered me 1 year same as cash. So I took it because I could just pay it in increments while collecting the interest on my savings on the money that I would have dumped off in one swoop.
In other words, I had the money to buy the windows, but instead of paying out that lump sum of money in one day, I paid it slowly over a year so that I could continue to collect interest on the money designated to pay for the windows.
Someone like me who is really good at saving and not instantly gratifying myself can play the credit system to his/her advantage. I love it!!
I always pay my credit cards at the end of the month. I never buy stuff I havent the money to pay for now.
Well, except for my house, but that's different. I dont know anyone who can pay for a house in full upon sale... And I realize that thought I officially paid 160K for the house, but the end of the 30 year term, I probably would have paid double for real.
Oh well.
Oh sure, it is a gamble. You can play and win. The problem is that these businesses are playing too, and they wouldn't be doing it if they weren't able to win more often than not.
ReplyDelete"Zero interest for 12 months" sounds like a good deal, and it is--but even after 12 months a lot of folks still don't have the money so they end up paying interest on it. They are too busy squandering their money on the next thing they need to have, or the next or the next one after that.
Well, yeah, and that's the problem... I think a lot of people need to take classes in how to manage their money. My mom taught me all this stuff, so I've always been a saver. She taught me that you should never buy anything if you cant afford it... she taught me the value of saving up for something you really want and only buying it after you have the money and then some in savings. I'm glad she taught me these skills because I think it's the most valuable life-smarts she gave me. (Well, besides a good set of morals that I generally agree with and keep!)
ReplyDeleteUsually by maknig yourself wait until you have the money for something, you learn temperance and you find out if you really wanted that thing in the first place. Sometimes by the time you have the money for it, a better use of the money has come along or a neater toy.