Many people make the mistake of being distracted by the monthly payment.
We are “sold to” using the monthly payment…New Honda Accord only $299/mo. No mention of the total cost of the car, or the interest rate. I could care less what the monthly payment is. I want a good deal on the price of the car, not the monthly payment.
The housing crisis can be attributed to the monthly payment. A lot of people bought more house than they could afford because they could afford the monthly payment. Well, at least at the beginning of the loan anyway. When the monthly payment increased for various reasons (balloon payments, ARMs, etc.), they could no longer afford it.
People think that if you can afford the monthly payment then you can afford the purchase. Making purchases and only considering the monthly payments has many problems.
1. You might have to stop working, or have a change in your monthly income, yet the monthly payments do not change.
2. You end up paying a lot more money.
3. Pretty soon your monthly income is chewed up by monthly payments.
4. You avoid looking at what it is really costing you.
5. You become a “slave” to your monthly payments, and limit your career/other options.
6. Many monthly payments add up to living above your means.
When you make a major purchase like a house or car what are you thinking about? Ask yourself these questions:
1. How much am I ACTUALLY paying for this house/car?
2. Can I really afford it?
3. Am I currently saving enough for retirement, and/or my kids’ college tuition?
4. What if my current income level changes, do I have a way to make these payments?
5. How is committing to this payment now going to impact my future choices/options?
6. Even if I CAN afford the monthly payment, Do I REALLY need this much car/house?
7. If I had extra money every month, how could I invest that money to create a future residual income stream?
8. Should I buy a smaller house/less expensive car, and invest in a rental property instead?
9. How can I pay cash and avoid any monthly payment?
Renee’s #1 Money Rule: Don’t buy things that depreciate with credit.
Better Best Network Inc. – Where building wealth is not bigger than you!
Renee Cermak
“World peace rocks and so does being rich!” Mike Dooley
