Tuesday, February 8, 2011

Saving Up to Buy Things

Saving up to buy things is the norm before the advent of easy credit. Rollover credit card debt has hit record high in S'pore. People know about the killer interest rate if the debt is not paid in full. Financial books advise on cutting up credit cards.

1 thing that's hardly mentioned in personal finance books is that when someone saves to buy a thing the item is often cheaper. Let's say Mr A wants to buy an item costing $1000. By saving up he's collecting interest (yes very meagre) from the bank. Thus instead of interest working against the consumer(credit cards), interest is working for the consumer.

2ndly, if the item is electronic then perhaps by the time Mr A has saved the $1000, he can buy a more powerful version for the same price or buy back the original item at the lesser price.

3rdly, if the person is wise in investing his savings instead of putting it in the bank collecting meagre interest, he can reach his purchase target faster & get to hone his $ management skills while doing so.

4thly an item purchased with mostly profits are not as heart breaking if the item is stolen or damaged (eg. my 1st road bike) compared with one bought with sweat & blood from a paycheck.

Buying stuff through accumulating credit card debt is generally a bad idea unless the item purchased can earn even more than the interest charged by the banks. Instant self-gratification is a bad trait for the aspiring investor.

No comments:

Post a Comment