The Price of Impatience
Posted on May 12, 2006
Has debt got you down? Are you struggling to make all those payments that come due each month? Do you sometimes get the feeling that no matter what you do, you just can’t seem to get ahead? Do you hope for a raise so you can use the extra money to work your way out of debt? Or do you feel that the only way to improve you life is to change jobs, move, inherit money, hit the lottery, or find a get-rich-quick scheme that works?
If you responded positively to any of these questions, then you’re experiencing the effects of destructive debt. It may be car payments, boat payments or any other form of consumer debt, but more than likely, it’s credit card debt that has you feeling this way. In my opinion, any type of debt other than a house payment that has to be paid from your salary is destructive debt. You may think, how can that be, everyone has debt, but let’s look at the facts. I’m don’t mean to single out credit card debt, I’m simply going to use it to illustrate what I’m talking about.
If you make a purchase, you have to pay for what you buy. There are only two ways to do this, cash or credit. If you finance a purchase, the interest you pay becomes an increase in the purchase price. On the other hand, if you save and pay cash, any interest you earn while saving becomes a discount on the purchase price. Think about it! It’s impatience that makes the rich to get richer and poor to get poorer. Here’s why.
Let’s assume that the ‘rich’ have money deposited in a bank. The bank pays interest on these deposits. In order for the bank to make money, it has to loan the money and charge an interest rate high enough to pay interest to the ‘rich,’� pay its operating costs, plus make a profit.
Now, let’s assume that you are a working person with decent credit and the bank issues you a credit card. You now have the line of credit available that accompanies your new credit card. You find yourself in a position with a want that exceeds your income. No problem! You want it and as long as it’s within your credit limit, you can buy it with your credit card. Still no problem! You can make the minimum payment when it comes due each month. So far so good! Or is it?
Here’s what happens. The bank loans you some of the ‘rich’� people’s money. It probably charges you several times what it pays the ‘rich’, but that’s not important. What’s important is the transfer of wealth that occurs. The interest you pay buys nothing. It only allows you to get what you want a little sooner. In fact, many working people pay enough in interest and finance charges over their lifetime to become millionaires. The interest the ‘rich’ receives buys anything they want to spend it on. The bank makes a profit and you become poorer. The ‘rich’� get ricer and the bank profits and it’s all because of your impulsiveness.
Granted, this may be an over simplification of what happens when you finance consumer purchases, but it’s so true. Interest paid on consumer debt is nothing more than a transfer of wealth. The needy wage earners borrow from the rich and pay for the use of their money. This reduces the amount the less fortunate have for future purchases and increases their need to borrow. It’s a vicious cycle that once you fall into is hard to break.
Here’s a tip. The next time you find yourself wanting something and you don’t have the cash to buy it, think about this. You’re going to have to pay for the purchase one way or another. Try developing the patience to save and pay cash for it. If you do this, you’ll end having more over time than you will if you succumb to emotion and charge it. Think of charge card interest as the price of impatience.
There’s a side benefit to saving for purchases. When you save for something over several months, the anticipation of getting it grows with each passing month. Once you have saved enough to make the purchase, it becomes like a reward. On the other hand, if you charge it, the excitement diminishes rapidly when the payments start coming and then keep coming and coming long after the excitement has worn off.
It’s sad to say, but we live in a society that promotes an “I want it now” mentality and encourages people to eagerly jump in debt. This accelerates the shift of wealth to the wealthy and widens the gap between the rich and the poor. The next time you want to make a big purchase, calculate what the payments will be if you finance it and then start paying this amount to a bank account you own. You’ll accumulate the cash needed to make the purchase in fewer months than it would take to pay for it if you financed it. You’ll also be amazed at how good this will make you feel. Believe me, this is a tip worth trying and if you do it just once it’s likely to become a lifelong habit!
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