Think Like An Investor, Not A Consumer
Posted on December 8, 2006
I was having my car serviced at a local automobile dealership a few days ago and while I was waiting, I decided to go into the showroom and look at the new vehicles. After dispatching an overly aggressive sales person, I just browsed among the various models on display and listened. There were several offices that opened into the showroom and in two of them were sales people meeting with prospective buyers. I couldn’t help but be intrigued by the conversations I overheard.
In one office an attractive, sharply dressed saleswoman was very animated as she excitedly explained to a young couple how she could arrange financing for seven years, which would make the payments on the new vehicle they were considering low enough that they could “easily afford” it. In another office, a salesman sporting the slicked back hair style and gold chains people often associate with the stereotypical used car sales look was working another prospective buyer. His approach was totally different. “This car has a $2,000 cash back allowance, but if you will sign it over to the dealership, we can use it toward the down payment and with your trade-in you probably won’t have to come with much money to put the deal together,” he said.
You could see the excitement building in both prospects as they mentally crunched numbers in their heads trying to justify the payments they would have to make on the new vehicles. The young couple came out into the showroom where they could talk out of the presence of the saleslady. They didn’t have a trade in, so much of their discussion centered on how much they could afford to pay down and finance the balance. Obviously the payments were more than they could “easily afford” because I overheard his wife say, “Well, we could not eat out as much and if we really watched our other spending, I think we could handle the payments okay. Plus we’re both up for pay raises pretty soon and when they come through things won’t be so tight.”
In the other office, the salesman was really going for the kill. The prospect had told him that he didn’t have any additional money to put down, and unless he could get into the new car by trading his old vehicle and using the $2,000 cash back money as a down payment, he simply couldn’t afford to buy it. As smooth as honey, the salesman suddenly became his best friend and said, “I’m not sure if I can get my sales manager to approve a deal like that, but I’ll tell you what�let’s write it up, get your signature on it to show that you agree with the deal and I’ll see if I can get him to take it.”
I wasn’t trying to eavesdrop on the conversations, but the proximity of the open offices to the showroom display made it hard not to over hear what they were saying. As I listened, my thoughts went back to when I had to finance vehicles and I realized things haven’t changed that much in the past forty years. Salespeople, whether selling cars, boats, appliances, or any other large ticket item focus on whether the prospects can make the payments, rather than whether they can afford the purchases. This credit mentality has caused many people to think like consumers rather than investors.
When I bought my first vehicle, I didn’t even think about buying a new one. I bought an old Ford for $800 and had to make weekly payments on it at the used car dealership. When I got it paid off, I continued to make the weekly payment I had become accustomed to making, only now I paid it to a savings account. I drove the Ford until I had saved up $1,000. Then I traded it for a newer used Chevrolet that cost $2,500. I paid the $1,000 I had saved, got $500 for my trade and financed the difference. Once again I drove the used Chevrolet until it was paid off and then continued to save the amount I had been making in payments. This eventually enabled me to buy my first new car, but I only had to finance about half of the purchase and did it for three years.
Two years after purchasing the new car, I was able to trade for another new vehicle and finance the balance for just two years. I drove that new car for three years, paid off the loan and again saved the amount of the payment following the payoff. The next time I traded, I was able to finance the difference for just one year and the rest is history. That loan was quickly paid off and I continued to save, pay cash for my vehicles and as a result I’ve avoided paying interest on car loans for over 30 years.
Here’s a tip! Investors earn interest, consumers pay it. Saving for large purchases earns interest and benefits you because the interest earned becomes a discount off the purchase price. On the other hand, if you finance a purchase it not only benefits the person or entity from whom you borrow, but it also raises the price of what you buy. That’s the difference between thinking like an investor versus thinking like a consumer and it’s a significant difference.
The biggest difference between investors and consumers is patience and that’s something anyone can develop. When you focus on getting out of debt you will experience the shift in mindset that comes from thinking like an investor and it will change your life for the better. Why don’t you try it?
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