June 11, 2013
Avoiding the monthly payment mentality is critical toward improving one’s balance sheet? What is the monthly payment mentality?
Avoiding the monthly payment mentality is critical toward improving one’s balance sheet? What is the monthly payment mentality?
The monthly payment mentality is where someone buys an item and pays for it month by month instead of upfront. In the long run, a person will be paying much more for the purchase by paying for it overtime because of interest. Nothing should be bought (besides a house) if enough money hasn’t been saved before hand.
Well said, Macala! You are one mighty smart school teacher. Let’s recap. The monthly payment mentality clouds our judgment on the actual debt we are assuming. It is easier to buy a car when your monthly payment is “only” $320 vs. $28,000 of actual debt you are taking on. This one example can be used for almost any depreciating item (loses value immediately as well as over long periods of time). This could include furniture, boats, other big boy “toys,” personal loans, and even credit card debt. You get it NOW, but as Macala stated, you will pay a much bigger price later.
What is a person to do? Following Macala’s advice would be wise. Avoid debt on anything that does not appreciate over time AND be very careful even when you do that (you can go bankrupt taking on “smart” or necessary debt). What debt would be acceptable? The home that you will live in just like Macala stated. A business that needs some upfront capital. Rental Real estate that requires a down payment. Even a educational loan that should produce great returns over time as you invest in YOU. The list of appreciating assets (value goes up gradually over time) are small. The list of depreciating assets are BIG. Learn the difference and avoid the monthly payment mentality. Your financial future will thank you.