I recommend that you pay cash for ALL purchases that you make. This includes gas and groceries to computers and cars. If you don’t have enough cash then you really can’t afford to make this purchase.
To pay cash for all major purchases you must save the cash before you purchase. This goes against our society’s thinking about major purchases. Today we use credit cards or some form of consumer debt to purchase anything we want right now!
It is not uncommon to hear about someone who went out with no intention of buying anything and then returning with a new car or television or some large purchase. Buying on credit is so easy that almost anyone can do it. Car dealers regularly advertise no money down to buy or lease a car. Sellers usually emphasize the “small monthly payment” over the actual full cost or loan balance.
Start a savings account which you use to save for major purchases. Don’t be watching the fund but just put the money aside. When you need something like a new car or new appliance, then you have money set aside to make the purchase with cash.
The advantages of using cash to make major purchases:
- you will get a better price
- you will have a better negotiating position
- there will be no monthly loan payments for the next few years
- you delay long enough to realize that you don’t really want this item
- you are likely to find a way to save cash such as buying a used item instead of a new one
- once you have purchased the item with cash, you will be free to just enjoy the item with no loan to deal with
- there is a strange sense of pride when you make a purchase for cash
It is a very old fashioned way of doing things but one that is extremely valuable. Before easy credit started over fifty years ago, this is how all major purchases were made.
Paying cash for purchases will have many benefits but there are two that I would like to emphasize here:
- The emotional benefit is often overlooked but is extremely important. When you buy on credit it can lead to a lot of stress from having to make monthly payments to facing bankruptcy. This stress can affect an individual but really affects a couple. If you are having troubles with your finances, it is probable that you are having trouble with your relationship also.
- There will be tremendous savings from paying cash for everything. When you save up and pay cash, it slows down the whole purchasing cycle. This leads to more time to think about the decision and research alternatives. The result is often a better decision such as “this is not a good idea” to “let’s buy a used item and save”. It is funny but when you use a credit card you spend more because there is a disconnect between the card and cash. But when you spend cash that you took time to save up, you have a better feel for the cost of the purchase and therefore are going to be much more diligent with your money.
I recommend that you make paying cash for all purchases a part of your FINANCIAL PHILOSOPHY.