Pay with cash or do without
Anyone remember this old addage? I think it still rings true. The idea here is that if you don’t have the money to afford it today you probably should not be buying it. As with anything there are exceptions, the most notable being a house. If we waited until we could pay cash for our houses I think we’d be waiting a long time. You’re also probably thinking that cars are another example. I would disagree on that one. You will be far better off financially if you buy your car with cash than if you finance it. The last time I financed a car was in 1991, the two cars I’ve bought since then were both new, and I walked into the dealer with a cashiers check to pay for both of them. The look on the sales doids face when you do that is priceless. If you can’t pay cash for the whole thing, at least pay cash for some of it. Financing 100% of the value of your car is a good way to get upside down with your loan and be stuck with it. As with most things you can pay me now or you can pay me later. When you opt for later you will be charged a premium for the privledge. I’m not a fan of paying one cent more that I have to for anything.
So what is a thoughtful person to do?
- Don’t take out a loan for a depreciating asset (Car, Boat, Other Toy, Vacation).
- Always try to put at least 10-20% down when making a loan so that you don’t run the risk of being upside down.
- Never put something on your credit card that you are not certain you can pay off at the end of the month.
Consider the case of that wonderful boat that you just can’t live without. If you borrow money for it you are basically saying that some percentage of your paycheck for the next several years will go to paying for that boat. When you do this are you buying the boat, or is it buying you? I prefer to own my toys rather than have them own me.
Pay with cash or do without. If you are not certain that you have enough cash to make that purchase then wait. Put it on your list of things that you want to save for, use it to motivate yourself to save. Once you have saved the cash for the item then go buy it. It will result in more savings, less stress and an overall better financial position.