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A coworker of Mr. Mt was selling his Honda Civic so he could find a girlfriend. He was rather sure, that with a nicer car, he would no longer be single. His Honda was almost paid off (just $3,500 left) and we took it off his hands for that price. He took out another loan for a $28k car. And he still didn’t get a girlfriend. (shocking, right?)

At the time, we had about $28,000 in the bank. There was no way we would have spent our entire savings on a new car.  We had worked so hard to get out from under $50,000 of debt. We were just starting to see our savings really grow. Our income was low, but we were stashing away $100 here or $400 there. Keeping our expenses super low and trying to save as much as we could.

Although this coworker had almost no savings, he was willing to spend $28,000 he didn’t have.

I found this really curious when the coworker took out that loan. If he would have had the $28,000, would he still have spent that amount?

If we could only spend cash that we had already saved for large purchases, how would that change our purchasing?

Here are a few of the dangers I see with buying with payments.

  1. You haven’t yet felt the pain of earning or saving the money. Why do people with the stacks of cash refuse to buy those fancy, shiny things? They know how blasten hard it was to stack all that cash! Earning it was hard. Slowly stashing it away in a bank account was hard. Having already felt that pain, there is a greater appreciation for the cash.
  2. You don’t feel the pain of biting the bullet. Handing over that pile of hundred dollar bills is a bit painful. Especially if it’s 280 $100 bills! Ouch. Never mind the fact that you will have to pay all that, plus interest if you take out a loan. You feel like you walked away with a brand new car for $1500 down plus something in the future. Whatever that is. You aren’t even really thinking about that. Just the $1500 down and shiny new car to show off and enjoy.
  3. You don’t think your future self will mind the payments. “$400 a month doesn’t sound too bad.” “I can probably swing this, right?” “It might make things a bit tighter, but it will be worth it!” Here is the thing: If your past self didn’t want to set aside $400 a month for the last 60 months, your future self won’t want to either! Think about all the months you didn’t want to save $400 for a new car. Your future months will have the same excuses the past months had.

In the end, you might spend a lot more on a car if you are spending money you don’t yet have.

If you have exactly $28k in your checking account, is that how much you would pay for a car if a loan wasn’t an option?

I have to admit, I’m a little glad that coworker sold us his Honda. We scored a sweet deal using just 10% of our savings. And have continued to drive that lovely little car all over the US and Europe for the last 11 years including during my month long YOLO US road trip.

Marketers would love for us to view the cost of large ticket items in terms of the monthly payments. But that is only beneficial to their bottom line, not yours.