The Monthly Mentality

Laura Rowley is clearly one of the best columnists on YahooFinance.  Not a tough feat when you're being compared to Robert Kiyosaki, David Bach and Suze Orman.  Actually, Suze's writing isn't bad, I just can't stand to watch her on CNBC.  Anyway, Laura wrote a column this morning that is completely, absolutely on the money.  It is titled How the Monthly Mentality Messes Up Your Wealth.

Read the article yourself, but the essence is this.  Most Americans have stopped looking at how much they are paying, how much they are borrowing, or what the rate is.  They just want to know one thing: "How much a month?"  That single question will prevent you from ever becoming wealthy.

If you are a reader of my blog, you know that I do not own real estate at this time.  I didn't have the resources to buy three years ago, and I feel that given the housing boom that we have experienced, especially in Southern California, prices are likely to decline, especially if interest rates rise.  I have heard from many different people, "well, if prices go down, but rates go up, it's the same thing."  But is it?  This prompted me to write, If rising interest rates causes the Real Estate Bubble to pop, will you be any better off waiting to buy?  It spawned a bit of debate over a few of my points, but I think I made the case pretty clear that it is not the same thing.  Even if your monthly payments are the same.

Have you bought a car, or even stepped into a car dealership in the last ten years?  Their first question is, "Well, how much are you looking to spend a month?"  This is inevitably in reponse to the customer's question, "What can we do about price?"  It's a total non-sequitor.  I ask about price, you talk about monthly payments.  They are not the same thing.  The problem is that most Americans have been suckered into believing that it is.  Give me a six year loan, roll my upside down balance into the new one...  You'll never get wealthy with that thinking.

How about these offers:  "Two years, same as cash.  No Payments for 24 months!"  Big screen TV, new matress, refrigerator or living room furniture.  We want what we want.  And we want it now.  Don't have the money?  That's okay, I can afford the payments.

Owe your dentist for a root canal?  Don't worry, there are some brochures in the lobby that explain the financing options that are available.  You can pay for that tooth on a five year plan if you want.

It's gotten to the point that nobody owns anything.  The bank owns your house, and you aren't getting any closer to getting it from them with your interest only payments.  The financing company owns your car, and you leased because the monthly payments were "more affordable", so you'll neve own it.  Your clothes and even last night's dinner were on credit card, so essentially American Express owns your clothes and the stuff in your stomach.  But that's okay, you can handle the minimum monthly payments.  Then there's my favorite:  Furniture rentals.  Get this lovely bedroom set for only $147.50 per month with a six month minimum.  Are you freaking kidding me?  At the end of six months you have paid $885, and get to watch the moving men leave your bedroom bare?  I'll sleep on the floor of a studio apartment before I rent furniture.  Shoot, buy used.  Or go to Ikea if you must!

Dave Ramsey said it best, "the guy who says, 'how much down and how much a month?' will never be rich."

By the way, next to Laura's column was this ad:

Comments

[Cecilia]

That's an awesome ad.

I agree with you that this particular column is a worthy read. Here's what fascinates me about the monthly payment cycle: other countries don't have it. For them, cash is king. Try using plastic to buy a house in Ghana.

Of course, credit cards, mortgages, and other financing tools are available in other countries. People tend to use them, however, as tools to reach their goals, and not as methods to satisfy impulsive purchases. That said, there are some Asian trends that will lead to the same conundrums that we see in the US.

[muckdog]

The way this generation treats credit and debt differs 180-degrees from previous generations. Depression era folks avoided debt like it was the plague. They saw what happened to those who owe. Unfortunately, the folks reading this blog are probably the among the few who can most withstand economic hard times. And it may not even take that. It could just be declining wages due to globalization that cause folks to endure financial hardship.

[DEBTective]

Right on the money, baby. The longer you stick to payments, the more your feet will stick to the ground and you won't get anywhere with the dough. Thanks for spreading Dave's word about living without debt. Way to go!