It can be so tempting to finance a new purchase. Rather than pay out a decent amount of cash at the time of purchase, it can feel better to pay over time. Retailers offer such plans because they know we’re susceptible to their allure.
The issue with financing is it’s just too easy to inadvertently commit to a number of monthly payments that collectively make it difficult to meet your other financial requirements and goals. Such payments often become somewhat invisible when they’re scheduled as auto-payments. (Indeed, some advisors refer to this as the automatic-payment trap.) Additionally, there’s normally either an interest charge or you may forego a lower price in order to get an attractive interest rate.
Generally, I recommend paying cash for purchases. This forces each of us to delay purchasing things we really can’t afford at the moment. Examples of what we should pay cash for include furniture, electronics, RVs, a second home, a remodeling project, appliances and so forth. Naturally there are a few things that we must have and that are just too expensive to purchase outright. A new home is a classic example of this. A car is often another example. (In the case of a car, keep the loan period to four years or less. Also, you may get a better price on the vehicle if you decline their financing – at least until the price of the car is agreed upon.) Finally, you might be asking, but how about unplanned emergencies such as a medical problem, a broken appliance or some needed car repairs? Such expenses are unpredictable in terms of timing, but they’re very predictable in terms of their likelihood of happening at some point in time. A recent article helps you prepare for such expenses without the need to finance them.
If you have questions about how to avoid the automatic-payment trap, or have other financial questions, we’d be pleased to discuss your particular situation in a no-charge, no-obligation initial meeting. Just visit our website or give us a call at 970.419.8212 to learn more.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.