Financing: America’s Plight
The new car. The new smartphone. The furniture or appliances for the new house. The lavish vacation. The designer handbag. At some point in our lives, most of us will have financed something. Lenders and salesmen make financing seem like it’s easy, popular, and acceptable.
At ELP Budgeting Services, even we have financed items we would never finance again. The point of today’s blog is not to shame our readers who have financed in the past. Instead, our goal is to educate and inspire our audience to make better financial decisions in the future. Furthermore, knowledge is power. Understanding how financing is a wealth prevention method, will transform future financial decisions.
The Proof is in the Numbers
Let’s break down the infographic above. Cars are one of the most commonly financed items. A car financed with a $2,000 down payment and $450 monthly payment for a 60-month term costs the borrower $29,000. Had the borrower invested this money instead, they could have acquired $36,000! That’s a $65,000 swing!
Have you ever financed a phone? We have without even thinking twice, but now that we know better we would never! Financing items typically makes a consumer spend more than they would spend if purchased outright. The new phone at $50 a month for 24 months costs the lender $1,200. (Have you ever done the math on your financed item? It may make you sick!) $1,200 for a cell phone is outrageous but companies hide behind the financed monthly amount. The $1,200 cell phone could have earned the lender $1,300 had it been invested.
Moreover, if a consumer is moving into a new and bigger home they are more likely to finance furniture and appliances. Let’s say the borrower finances furniture with $1,000 down and $200 per month for 60 months. The furniture ultimately costs the borrower $12,000. Had the money been invested, the consumer could have earned $16,000!
We bet the consumer would have spent less money had they purchased the car, cell phone and furniture outright. Do you think salesmen don’t know this?!
Ready to kick the habit of financing? Here’s 8 tips to help.
8 Tips to Avoid Financing
- Buy a certified, pre-owned car and save thousands. Budget to buy it outright. Negotiate the price lower by indicating you will be paying cash.
- Purchase the smartphone two models behind the newest version. It’s more affordable to buy outright and is still technically supported.
- Negotiate appliances being included in the purchase or renting of a new home.
- Buy furniture room by room as you can afford it.
- Purchase furniture from marketplaces and second-hand reseller sites. Search for easy to clean material items from a smoke-free, pet-free home to ensure cleanliness.
- Buy appliances “open box” from companies who guarantee their reliability. The affordable price will make it possible to purchase in full.
- Start a sinking fund to budget for a vacation and spending money a year in advance. If you don’t go on vacation, you’ll still have the money saved.
- Purchase second hand designer items in good or like-new condition from fashion designer and auction sites.
If you’re like us 5 years ago, you read the information shared thus far and said “well that’s nice but financing is my only option given my financial circumstances.” Our clients are so successful because at ELP Budgeting Services, we understand. Why? Because we’ve been there.
Here’s how to change the trajectory of your financial circumstances to ensure financing is no longer the obstacle between you and wealth.
- Change your attitude about what’s possible. Believe you can and you will.
- It’s essential to plan and save for what you want or may need in the future.
- Practice delayed gratification. Can you survive if you don’t have it right now? Can you wait until you save up enough to buy it outright?