Ask yourself, “Can I afford it?” Not, “Can I afford the payments?”
I specifically remember voicing the second question as we pondered whether to purchase a timeshare. Seven years later – that is still the single worst transaction in my financial history. Seven years later and $100,000 lighter, I’m convinced that focusing on paying payments caused a lot of problems.
Payments on anything other than your mortgage should be avoided. Let me outline my problem with focusing on paying payments for you.
Payments encourage impulse shopping. Any purchase that later resulted in regret was generally the result of an impulse buy. Considering the payment vs. the purchase price allows you to justify the additional monthly amount without considering the long term impact to your future wealth building ability.
Payments equal more debt. To emerge from debt one must first stop borrowing. When we use the payment as a barometer of whether we could afford an item versus the entire cost, then we tend to overextend ourselves.
Payments consume more income. You pay more in actual dollars because of interest. You also pay in lost ability to maximize the wealth building ability of your income because of the commitment to repay a debt. Additionally, you’ll be willing to pay more for an items in installments than you might when forking over one large sum.
Payments limit the big picture perspective. Dividing your income between creditors dilutes your income’s strength. Focusing on managing payments takes your eyes off the big picture of building wealth and becoming financially free.
Payments suck! I said it. We can saddle ourselves with the responsibility for payments on an item we no longer use, want, or – in some cases – have access to. Paying cash will cause you to make more deliberate, thoughtful choices and likely lead to meaningful purchases.
Free yourself from debt by first freeing yourself from the idea that paying payments is a good idea. Remember, payments can keep us from prospering!
What are some other problems with payments?