Thinking Only About the Monthly Payment Is Stupid
Posted by Cap in Personal Finance on September 9, 2006 |“Hmm… I don’t know if we can afford that.” says the wife uncertainly.
“Oh don’t worry about it honey, it’s only an extra $100 a month!” says the S-M-R-T hubby.
Right…
Have you ever eavesdrop overheard a conversation like that? Especially at the big screen TV aisle in Worst Buy?
While you’re considering the total cost of ownership, you should also refrain from looking at purchases in terms of monthly payment. It’s a serious “I want to be in debt” mentality.
Granted, in situation such as a mortgage loan, it’s reasonable to really look at the monthly payment, but for semi-big ticket purchases, thinking only about the monthly payment can seriously disguise the total cost of a purchase.
Remember kids, just because you can afford the monthly payment, doesn’t mean you can actually afford the purchase. Next time the infomercial says “only five easy payment of $29.95″ — add up the monthly payments with your spiffy abacus.
8 Responses to “Thinking Only About the Monthly Payment Is Stupid”
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September 9th, 2006 at 10:37 am
I don’t think they’d know what an abacus was.
September 10th, 2006 at 8:21 pm
I agree completely, but with the caveat that even for a mortgage you should first make sure that you can “afford” the total amount, then worry about the monthly payment.
I’ve seen a lot of people buy more house than they can reasonably justify just because they can “afford” the monthly payment.
September 11th, 2006 at 8:25 am
This is how many people got sucked into ARMs with payments that have become unmanageable and interest only loans that are real wealth killers. Short term thinking produces terrible long term results.
September 11th, 2006 at 6:52 pm
I agree that thinking in “monthly basis” terms is a recipe for disaster. When I think of how much something is going to cost me annually it puts a whole new spin on things and is much more realistic in terms of determining this cost into my budget; better to look at total cost.
September 12th, 2006 at 5:38 am
Speaking of mortgage payments beware of real estate agents who magically add up a set of numbers and then tell you “Well according to these figures you can afford a house up to X amount of dollars”. A few years back we were told we could afford a house that was over 3 times our annual income!
September 12th, 2006 at 8:05 am
The “only $X more per month” also disguises that actual cost of what you are buying. Car salespeople love to do this. The first time I bought a car, I got a stereo/CD changer upgrade because it was only $10 extra per month. When I later looked at the full invoice, the actual charge for the upgrade was $1,000. The same item was available for $600 installed at Tweeter.
Speaking of HDTVs and TCO, I have no interest in upgrading to an HDTV because in addition to spending thousands on a TV, I would need to upgrade my cable service and replace the TV cabinet and matching bookcases I now have. Total cost of an upgrade for me is over $5,000. No thanks.
September 12th, 2006 at 10:43 am
I hate it when a salesman says its only $x per month. Got suckered into attending a timeshare presentation in Vegas. its only $215/mo for the next 10 years! no matter that I’m buying a $250k condo for $2.5 million. When I pointed this out, he then switched tactics to point out the tax benefits and other rubbish.
Amazing how people get bamboozled into this crap.