Wednesday, June 6, 2012

Saving vs. Borrowing for purchases

Whenever I want to make a purchase for something we need we always save up for these items before we buy.  For example...borrowing money to buy a TV is a huge mistake.  One reason why it is mistake is because the TV is a huge time waster.  Number two the TV isn’t worth nearly as much as soon as you bring it home.  Number three the TV might end up costing you double over the life of the TV.   

Borrowing at high interest rates is a huge mistake.  Why borrow paying 21% interest when you can save earning 1% interest?  Let’s do the math.
$1,000 TV @ 21% interest
= $210
This is only if you pay it off in the first year! 
Option two.  Save $100 per month where the interest earns you 1%

Using a calculator you can find out that you will earn $6.52 in one year.
Now you have in one year $1,200 + $6.52 = $1,206.52 – 1000 = $206.52 left over.

If you are able to save money for your GI Bill costing you $100 per month for 12 months then no reason why you couldn’t do the same for a TV or any other large purchase.  Remember, that TV has operating and support costs.  Cable TV is very expensive sometimes costing you $100 per month.  Let’s do the math.  Say you watch TV 10 hours a week or 40 hours a month.  You are spending $100/40 = $2.50 per hour to watch TV.  Movies is much worse…some movies cost like $10 per person.  If the movie is 2 hours long you are spending $5 per hour of entertainment per person.

How you spend your time is the difference between someone who will become wealthy or not.  Wealthy people spend a lot of their “free” time working.  Many wealthy people who work in their spare time love it.  Find something that you love to do in your free time that makes you money is the recipe for financial success.

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