The Smart Way to Make Big Purchases

We all want nice things, isn’t that the point of saving money for down the road, so we can someday afford to have the lavish lifestyle that we’ve always dreamed about?  Stuff like that comfortable king-sized bed, air conditioning for the house, surround sound for the big screen, you get the idea.  The problem is many Americans purchase these things on credit before they actually have the money to pay for them.  The new question is; Does the person own the item, or does the item own the person?  If the person who buys everything on credit before and can’t cover it with their savings were to lose or quit their job today, could they still afford purchases that had made weeks sometimes years (cars) prior?  We become slaves to the things we “own” when we buy on credit with money we don’t already have.  People ending up having to work just to pay for things they already bought months ago and are constantly behind.

The solution is still to make purchases on credit.  Credit is a great tool we can use in our favor.  We are still going to make our big purchases, but we are going to wait until we have the money in our savings account to cover the expense in full.  Here’s the strategy.  Big purchases (usually totaling over $300) generally offer financing deals (The worse the economy generally the better the deals because these establishments are enticing you to buy).  Finding “no interest or payments for a year” is not uncommon as many consumers know; the problem is we have to mentally allocate that money for the purchase because that money is technically already spent.  The money that we saved to make these purchases is just in case we make a mistake.  The “fine print” is notorious for screwing over the consumer.  It happens to the best of us.  The bottom line is everyone misses details now and then but through proper planning we can minimize the damage to our credit and our savings when we make one of these mistakes.

Let me give you a scenario to illustrate this point:

John N. Debt and Bob B. Saving both purchase an identical flat screen TV on a store credit card that offers no interest but minimum payments each month on the TV.  The payments will only be around $80 per month which is a great deal.  3 months down the road they both get busy and forget to make a payment on their respective TV’s.  The fine print of the deal now states that a late payment defaults on the original 0% interest and send it to a regular rate of 11%.  John N. Debt is mad about his mistake but doesn’t have the extra money to cover the cost for the TV.  He will now have to eat the extra interest each month that he hadn’t budgeted for.  Bob B. Saving on the other hand is also mad about his poor financial decision but he had the money in savings to cover the cost of the TV he quickly pays off the cost of the TV and avoids paying the 11% interest.

Another more advanced solution would be to shop around for other 0% intro credit card balance transfer offers with no fees and to transfer the balance of the TV.  This would extend the life of the 0% interest rate and allow you to retain your money for longer.