You’re heard the saying, “Patience is a virtue.” But did you know that patience can also make you rich? Yes, it can! By saving up and paying cash for the things your family wants, rather than financing your purchases with a loan or credit card, you add a lot of dollars to your personal bottom line.
Unfortunately, in our culture, we want it and we want it NOW! If we don’t have the cash to pay for it, retailers and banks will line up down the street to offer us “easy monthly payments.” Once you fall into this trap of “easy monthly payments” it’s hard to break the cycle. However, it can be done, and there’s great satisfaction in saving up and paying cash for something big, like a car. Too many people are clueless about the true cost of financing their purchases. Which is why I love this example from an article called, “Know the True Cost of Financing” from Kelly Blue Book’s website:
“Let’s look at a typical new-car shopper, who has decided to buy a car with a price of a little over $27,000 which, with taxes, license and fees (which are usually about 10 percent of the vehicle’s price), brings the total to $30,000. Mr. Shopper offers a down payment of $5,000, which includes the value of his trade. That leaves $25,000 as the amount to be financed. For a four-year loan on that amount at 6.9-percent interest (Annual Percentage Rate, or APR), Mr. Shopper will pay $3,680 in interest. His monthly payment will be about $597 and the amount he will pay for the car will be $28,680 from the loan, plus the $5,000 down payment, for a total of $33,680 over the four years of the loan.”
By saving up and paying cash for his car “Mr. Shopper” will save close to $3,700 in financing costs! This doesn’t even take into account any interest he might earn on his savings. The same principle is true for smaller purchases. If you charge your purchases for groceries, gas, clothing, and entertainment and DON’T pay off your credit card balance IN FULL every month, those items are costing you more money. For example, if you spend $100 on a pair of new shoes and charge the purchase to your credit card which has a 15% interest rate (today’s average rate) and a minimum monthly payment of $10, those shoes will cost you $107.49. When you start calculating that impact over all of the items you charge, you can see why finance charges can take a big bite out of a family’s monthly budget!
Surprisingly, VISA offers a handy calculator – located at the bottom of this post – to show you how much your cost of credit will be if you charge something on your credit card. My hope is that YOU will use it as a motivator to save up and pay cash for what you want!
And speaking of saving up and paying cash for cars… As a follow up to my blog post, “How to Buy a Car Without a Car Payment,” I’m excited to announce that I did finally purchase my NEW 2014 Hyundai Sonata with cash two weeks ago! I’ve been piling up money into my New Car Fund savings account since I purchased my last car, almost exactly nine years ago. I had a picture of this black Hyundai Sonata hanging on my Vision Board for over two years. Now here it is in my garage!
I negotiated a great deal on my new Sonata and sold my old one to some dear friends I know from church. And I still have $3,500 in my New Car Fund to put towards my 2023 Sonata! 😉
What are you saving up for right now?