Don’t fall victim to the sirens of easy finance

By | 22nd May 2017

Don't fall victim to the siren call of easy credit

In Greek mythology the Sirens lured nearby sailors with their enchanting music and voices to shipwreck on the rocky coast of their island.

It’s the same with credit and finance – if you are not careful you could find that your financial ship is heading towards disaster on the rocks.

This is something I have talked about several times – money raised through finance doesn’t have the same influence on you as cash that you have already worked hard for.

When you are buying things with finance there is a disconnect from reality. You can see people spending huge amounts that they would never do if they were instead paying cash.

A good example is cars, where for example you see people ticking option boxes for perhaps entertainment systems that could cost four times what they would spend on a home system. If it’s only £40 a month extra then they may not realise that it is actually almost £2,000 every time they take out a 4 year lease.

Perhaps it’s people finding out the most they can borrow and spending it all, rather than seeing just what they need and THEN looking at how to fund it.

Or it could be people buying mobile telephones that cost £800 – when you are just paying per month then the reality of the situation escapes you. Would someone really choose to pay £800 cash for a phone when a £150 smartphone should do everything that the more expensive one does?

Physical cash also has a real presence. I remember a while back when I saved up cash to pay for an expensive hooptie car repair – I definitely knew the value of the money as I took it to the dealership in notes, whereas if I had paid by card then it would have had no more influence on me than buying a coffee.

It has been reported that the average American will spend $600,000 in interest payments over a lifetime! I’m sure that they would have a better use for their money than to pay it out in interest.

I’m regularly reminded of the line from Jurassic Park “Just because you can do something, doesn’t mean that you should.”

Now it is possible for someone earning minimum wage in the UK to lease, brand new, one of these:

Someone-on-minimum-wage-in-the-UK-can-lease-a-Mazda-MX5-Miata

Is this suitable for someone earning minimum wage?

Finance houses will now let you lease a car around 1.5 times your annual salary.

I’ve already talked about how I recommend Dave Ramsey’s reasonable guideline for the most you should ever spend on a car… 50% of your annual salary, yet leases for three times that are possible.

Remember, you can actually have anything that you want without finance – you are not restricted to cheaper options.

Something I covered recently is that, by avoiding finance, all that changes is a wait initially to save up the money.

After that, you can regularly upgrade to new items just the same as someone buying on finance.(IF you want to – having cash changes your perception of reality.)

The difference is that your upgrades are paid for with cash – another chance to decide before purchase if you are entirely sure the amount is reasonable for what you are getting or if a better option exists or indeed if a longer term is actually better for you and you keep what you have.

When you have the actual cash upfront, that you have worked for, it lets you see the real position – rather than falling victim to the sirens and their call of ‘have it today for a monthly payment!’

After building up 17 years experience in industry and practice, James started his own business from scratch in 2006. He now helps others to do the same, while minimising both the risks and costs. James is dual qualified in tax and accounts, and has won multiple awards for small business. In 2014 he was invited to Downing Street, as one of the Small Business Saturday 100 winners.

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