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How you pay for purchases determines your financial future


One of the keys to financial success is understanding that the use of savings or debt for purchases has a major impact on your future financial success. More to the point, how you pay for any purchase has a direct correlation to your future financial success.
 
What are the basic ways we can pay?
We have four choices for how we pay for purchases. Use current earnings, save for the entire amount, borrow for the entire amount or use a combination of borrowing and saving to pay for our purchases. Not everyone is always going to have these choices available all the time but these are the primary ways to fund purchases.
 
Why is the method of payment so important to future success?
Being smart about how you pay for purchases impacts how much the item will actually cost. The method of payment also can be instrumental in making wise financial decisions and help people from becoming overextended because it introduces financial discipline which is something everyone needs.
 
What types of purchases should not be done with credit?
Definitely avoid borrowing to pay for everyday purchases such as eating out or entertainment. And don’t use credit to make payments on other debt. Buying gifts, especially holiday gifts are other items that should never be placed on credit.
 
What do you recommend that should be purchased with savings?
Vacations, electronics, furniture and even clothing should really be purchased with a combination of savings and/or earnings. For example, if you are getting a tax refund or a major bonus, use these sources of income for the purchase of items out of the ordinary. If you use these ways to pay, you will know when and how much you can afford to spend on all of these purchases.
 
What are typical credit and savings purchases?
Buying a home is definitely a purchase that will require credit and savings. The key is to have as much as of a down payment as possible. Even though you can borrow with as little as 3% down, strive to get to 5 or even 10% to obtain the best financing options available.  Of course 20% will allow you to avoid private mortgage insurance costs and save you money.
 
What about buying a car?
It should be a mix of savings and debt. For a vehicle purchase determining how long you intend to own the car will determine the best mix of debt and savings. The longer you intend the own the car, the less you need to consider having down. If you are planning on trading frequently, then strive for 10 to 20% down to avoid getting upside down on subsequent purchases.
 
Are there any purchases that should be completely on credit?
Major home renovations are a good example of a purchase that could be done completely with credit and not have a major impact on your long term financial success. If the renovations make your house more valuable or allow you to stay instead of moving you are probably reaping more benefits than the cost of using credit to fund the improvements.
 


Posted: 9/28/2017 with 0 comments

Categories: Buying a Car, Loans, Money Matters, Saving, Spending



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