Tuesday, August 19, 2008

Don't Finance Consumer Spending

Financing consumer purchases - either through payments or credit card debt - is a bad habit that folks should learn to avoid. Here are some of the reasons:

1. It makes you think you can afford something, which in reality you may not.

2. It reduces your future standard of living to increase your current standard of living.

3. It teaches instant gratification and reduces self decipline.

4. It gives you the illusion of paying less for something expensive, so you spend more.

5. Interest payments and fees mean that you will pay much more for your purchase than you would if you paid in a lump sum.

By the way, I am not against financing, only against consumer spending financing. If you are going to buy a house for example, financing is definitely in order. Car? I guess that depends.

I will be experimenting with short format posts now and again. Please tell me if you like this new approach and if I am achieving my goal of providing bite sized useful information.

2 comments:

Scott @ The Passive Dad said...

It's tough reading stories about people here in California, and probably elsewhere as well, that financed homes and took out additional cash. Some of the hardest hit areas like Stockton, California had borrowers finance 100% or more to buy furniture and vehicles. Just makes me scratch my head in amazement.

Shadox said...

Somehow, Americans have gotten used to buying everything on credit and borrowing from tomorrow to spend today. It's a habit that must be broken.