Patience Saves: The Power of Paying Cash for Big Purchases
We live in a world of sales. Every ad, billboard, and social media post is there to encourage us to make a purchase. There are many instances where we are needing to make a big purchase, such as buying furniture, a vehicle, booking a vacation, or a home/car repair. In many cases we have a heads up. We know the car has been making sounds it shouldn’t be for the last month. Many of the big purchases we make are not urgent. It is not the difference between having a roof over our head or not. Instead they have to do with convenience. It would be really nice to get a new mattress and not sleep on a sagging old one. It would be nice to have 2 cars and not have to ride share with a friend or our spouse.
It is easy to convince ourselves of the urgency behind a big purchase due to this convenience factor. Then, as we go looking for a place to buy that big purchase, it is easy for the salesman to add to that urgent feeling. Our brains have a way of working the subconscious mind to reflect the conscious mind. Meaning, when we know we are looking to buy a new bed, our subconscious starts to pick up on the ad that is playing on the radio or the big mattress sale signs in the windows as we are driving by. We become very aware of how everything around us is trying to meet what we have in our mind. This is why the moment you decide you want a certain make and model of a vehicle, you start to see them everywhere. Since many big purchases are stemmed from providing a convenience and not an urgent necessity, we are able to properly plan for it with our finances.
The society we live in is always trying to push “buy now, pay later” purchases. As convenient as this is, it sneaks in a pricy upcharge to our overall bill, called “interest”. Our $1,500 dollar bed purchase now becomes $1,800 over the next 3 years. Instead of falling into this mindset, we need to get control of our finances so that we can start saving for our next big purchase. If we know a monthly payment would be $200 for that bed, we can start saving $200 a month now. Then, in 8 months we will have the money saved in full for our purchase. In many cases we can get a discount by paying in cash and in full. This will also keep us from getting upsold to a more expensive version because we don’t have any more than what we planned for. This approach to big purchases is nothing new. Our grandparents and great-grandparents did this out of necessity. Debt wasn’t so easily accessible and the consequence of it weren’t downplayed as it is today.
Humans are creative by design. We have a way of convincing ourselves a convenience purchase, falls in the urgent category. When a vehicle dies and requires several thousands to get it up and running again, you may not want to invest anymore into it. Every vehicle eventually reaches that point where the amount spent to keep it running reliably is more than is wise. Instead, rerouting that money towards a newer or more reliable vehicle is the better choice.
Our vehicle died in the summer, we knew we were coming up to colder weather. Even though we could have gone out and replaced the car, we decided to wait. We utilized bike riding to get to work, and in the winter we shared our remaining car. This kind of situation required us to get creative with scheduling of jobs, and when we would do errands or take kids to other activities. Sharing one vehicle was inconvenient, but it was never impossible to still run our daily obligations. Another unanticipated benefit was we saved the extra cost in gas and insurance by having only one car. This allowed us to take the time (nearly a year) to keep saving, decide what kind of vehicle we wanted, and look around for the right fit. Because we didn’t have a narrow timeline we put on ourselves, we didn’t have this urgency pressuring us every time we looked at different vehicles available.
When making a big purchase, there can be a large price range depending on different factors. For the bed example, If we buy it at a wholesaler warehouse we can get them 50-70% cheaper than at the mattress showrooms. When buying or selling a vehicle, you will get the best price through a private sale. Going to a used car lot will cost a lot more for the same vehicle but it could come with a partial extended warranty. The last tier for car purchases is buying new. Unless you have the ability to pay for the vehicle in full, this should not be a purchase option. It is well known that a vehicle loses a large chunk of its value as soon as it is driven off the lot.
Sadly many people “rent” their cars forever. They buy a brand new car or slightly used at a dealership, drive it for 3 years and then trade it in for the next upgrade. The amount of interest they pay over that time, and the mindset they are enforcing is one of keeping up with the Jones’. Owning what we have and being grateful for what we own, brings a lot of peace. When don’t have payments for the couch set, the car, the vacation, or the dog, we are able to actually work today to pay for tomorrow. Instead of paying for last year’s purchases.
The only “big purchase” that should ever be bought on a payment plan would be a house. Even with this, we still want to choose wisely. Just because we are approved for a 500K home purchase, doesn’t mean we should be buying a 500k home. As with life there is always grey area. Where putting something on a payment plan is necessary. It is few and far between though. Instead of looking for that grey area, we need to put as much creativity into looking for ways to come up with the money ahead of time. Everything might feel out of reach today but waiting the extra months needed to presave for it, will save hundreds in interest later. Delayed gratification builds good character habits. Become that example of intentional money management to your kids and to yourself. You will be glad you did.