The best advice I could ever give you about your purchases
is this: “The deal of a lifetime comes
once every seven days.” I want you to
think long and hard about that statement.
I first heard it from a real estate agent when I was looking to buy a
house. His wisdom has stuck with me.
I bought my first motorcycle for $300.00. Sure, it smoked a little bit, but it cruised
down the highway at 65 mph with no problems.
This was actually my only mode of transportation at the time, and I used
it to go everywhere! I had found the
best bike.
Well, that was until a year later when I found another
motorcycle for $525.00. It was quite a
bit newer, about twice the size, and it ran like a champ. I rode this one until I found another
motorcycle...good price, only a few years old...
The story goes on and on.
When I was searching for a truck to buy, my dad would repeatedly say to
me, “There are always trucks for sale.”
It’s a good point. And it would
be a fine point to remember anytime you or I go to a store. There are always cell phones, couches, rugs,
flowers, plasma TV’s, candy bars, and MP3 players for sale.
They will be for sale when we are at the store, and they
will also be for sale when we leave the store and go home. They will be for sale when we want to make an
impulse buy, and that same item will be for sale when we fight the urge, go
home, see if we can actually afford it, and think it over for a day or two.
But the companies know that we have people that like to buy
things. And they know just how the human
mind operates. At least in America,
people want bigger, faster, newer, or customized. So companies spend millions of dollars each
year on advertisements with slogans like... “new and improved,” “4GB instead of
2GB,” “increased legroom,” “more horsepower,” “advanced formula,” “choose your
own color,” and on and on. Go ahead,
next time you go to the store or look at Sunday’s advertisements, check out
just how many companies use terms like that.
They are only trying to create a sense of disappointment in you.
If you have a 2GB MP3 player (which is not even full of
songs yet, but that is besides the point), and a 4GB MP3 player comes out, the
companies try to get you to think that your “old” (maybe a few months) MP3
player is out-of-date. They do it
everyday with everything from laundry detergent to automobiles. It is far easier to create a sense of
disappointment than to create a new sense of longing. As long as they can create a sense of
disappointment, though, the “want” will always follow.
I challenge you to ask yourself why you are shopping for a
new couch, a new car, a new pair of jeans, a new cell phone. It may very well be that you “need” (I use
this term very loosely) these items, but if you are shopping for a cell phone
with one already in your purse, just do me a favor and ask yourself why. Or if you find yourself in the furniture
store calling your husband who is at home on your couch, just do me a favor and
ask yourself why.
The problems of impulse-buying are too deep for one article,
and what I really want to address is the strategic but very dangerous tactics
that companies use to get you to buy their products. I hope to give you the knowledge to prevent
yourself from getting caught in what thousands of Americans fall prey to every
day. Companies know that they have to be
smart in order to get you to buy their products, and so they create clever
systems that I will discuss below. PLEASE
read through each of these systems in detail.
They are not difficult to understand, but they are very easy to
accept. But when you see what is
actually happening (they often don’t proudly disclose these details...they are
always what you find in small-print at the bottom of the page or at the bottom
of the commercial or what you hear the speed-talker say at the end of a radio
advertisement), you will be better-equipped to take advantage or not take
advantage of the offers. And in most
cases listed below, it is best to not take advantage of these offers.
See if you recognize any of these...
LOW MONTHLY PAYMENTS
This is without a doubt the best offer used by
companies. And if you get nothing else
out of this article, then please just remember this: Whenever you see the term “low monthly
payments,” put up your guard and be VERY careful. This should raise yellow flags for you. Why is this a problem? I mean, after all, don’t I want to have low
monthly payments?!
Maybe. But most
likely not. Depending upon the offer,
low monthly payments simply means that you pay more in the long run. It’s a simple fact...if you pay less, then
your loan is longer. If you make
payments of $5 on a $100 loan, it will take you 20 payment terms to pay off
that loan. If you make $10 payments,
your loan time will be cut in half with only 10 payment terms. If you make $50 payments, you will be done in
two payment terms. This is a no-brainer.
So I absolutely love to go car-shopping with my dad. It seriously rivals any sporting event. The excitement, the intensity, and the humor
is more than enjoyable. I guess you can
say that my dad “knows” the system. So
here’s the scenario that is as predictable as the morning sunrise. I have seen it numerous times in one single
day, and I have seen it repeated over the course of years...
My dad figures out what he can afford for a car. He takes that figure with him. Let’s say $20,000. That is the top price he can pay for a car. He has punched the numbers at home, and he
can’t go over that. So he heads to a
dealership. He tells the person that he
wants a car for $20,000, and we often are shown cars for $24,000-$25,000. Of course, we are often not told that at the
time. Sometimes they have the price in
the window, other times not. When the
price is there, my dad will look at the guy funny, try to figure out why he
doesn’t understand English, and then adamantly tell him that he wants a car
within the $20,000 price range.
“Well, how much can you afford? What are your monthly payments on your car
now?”
(Did your yellow flag meter go up?!)
And my dad responds, “Sir, I have already figured out what I
can afford. I told you I need a car for
$20,000 or less.”
“Well, what monthly payments are you looking for?”
(Your flags should be flapping in the wind now!)
And so he continues his sales tactic. He has been taught, trained, and become
rather successful at selling monthly payments (even moreso than cars). He could be selling a house for all he
cares. All he needs to do is sell the
low monthly payment to the customer, and he has a buyer.
Unless you are my dad.
Let me show you what is actually happening “behind the
scenes.” The car salesman is trying to
sell the low monthly payment, because that is how people are taught to
think. Our society has trained us to get
by with payments. As long as we can pay
the bills this month, then we are secure.
And so every year, millions of people live month-to-month, paying off
whatever monthly payments they have (house, car, boat, motorcycle, etc.). And yet they know not what they are doing.
So let’s say my dad has a monthly car payment of
$350.00. Let’s say he owns a 2004 car
that he bought brand new for $15,000 with a four-year loan. He shops for a car in 2007, so he is three
years into his loan, still owing $4000.00 on the car.
He then goes to the dealer, and he says he wants to buy a
car. The salesman only wants to know
what you can afford each month, and he will tailor a loan to fit your monthly
payment. How does this work?
Well, let’s say that my dad goes to the dealer and actually
answers the salesman’s question. “What
are your current monthly payments?”
“I am paying $350.00 a month.”
“Ok, great, we can get you into a very nice car for $350.00
a month...” And the salesman shows my
dad a whole section of brand new cars, all with prices of $25,000. How is this possible to have a $10,000
difference between my dad’s 2004 car and a new car yet still have the same
payment?! Simple. Change the length of the loan, but keep the
same “low” monthly payment.
Let’s watch what happens.
Let’s say my dad finds a $25,000 car he really likes. Ok, let’s make a deal, the salesman
says. And they go inside and he shows my
dad that his monthly payment will be $350.00.
He simply does this by adding more payment terms to the loan. In this situation, the $25,000 loan would be
a 7-year loan at a 5% interest rate.
This would give a monthly payment of $353.35. My dad’s previous loan was at the same
interest rate of 5%, but it was only for four years. His monthly payment was $345.44.
And so every day, car salesman sell “low monthly
payments.” Yet what are they really
doing? Or better yet, what is the
customer actually doing? The customer is
still paying for that car. Just because
you have low monthly payments does not mean that you pay less. It’s actually the opposite, but often
consumers simply do not understand.
If you have low monthly payments on a $25,000 car, you will
still pay for the entire amount of that car (plus interest). Over the seven-year loan, your final payment
will be $29,681.22. And that is with
your low monthly payments!!!
This same tactic is used for nearly all large items that
businesses sell (be sure to see the article on “Buying a House” for the same
story but with larger numbers and bigger consequences). Motorcycles are advertised for $79/month. Televisions are advertised for $50/month.
The best thing you can do when you are offered a low monthly
payment is to respond: “How much will I
pay in the end for this item?” Not only
will that show the salesman that you know what you are talking about, but it
will also give you the most important answer that you need! And when you hear that you actually pay $2000
for the $1000 computer, you simply refuse the special offer and turn around and
walk away. It’s that simple.
NO MONEY DOWN, NO PAYMENTS, NO INTEREST FOR 12 MONTHS!
Too good to be true?
Perhaps. Well, the fact is that
this statement is very true. This is
often used with companies that sell furniture or electronics. They paint this slogan in bright neon letters
on their storefront windows, and it’s hard to drive by without stopping. I mean, who wouldn’t want to buy a new
kitchen table and chairs and pay nothing for them, right?!
And thousands of people do just that. They buy a beautiful new living room on
January 1, 2007, and they invite guests over to watch football on their new
micro-suede furniture. And they smile
the whole time because they still haven’t paid a penny for the items!
Then January 1, 2008, comes around, and they start making
their payments. Except they realize one
thing that they must have overlooked one year ago. Not only are they responsible for their
monthly payments in 2008, but they are actually responsible for their payments
in 2007, as well!
How does that work?
Well, if you read the fine print (let it be known that anytime there is
fine print, there is a catch. This is
almost a 100% accurate statement. So
just remember this handy little slogan... “If it’s fine, it’s not fine.” In other words, if there is fine print, there
is a dangerous catch wrapped up in pretty little wrapping paper. Buyer beware.), you’ll find out that this is
how this particular system works. Here
is an example from an ad taken from *************
************
Now, please understand that I am saying the following words
cautiously. I will rarely use a blanket
statement for everyone when dealing with money issues, as every situation is
different. And the following advice is
meant for money-saavy people, for people who have had years of experience of
handling money well. If this does not
apply to you, then the risk far outweighs the reward. I do not recommend what I suggest. First get a handle on your finances, then
start taking advantage of offers like this.
Here is how this offer can be advantageous. As I mentioned earlier, the fact of the
matter is that this offer really does require no down payment, no interest, and
no payments for a full year! But a smart
purchaser can actually make payments during this first year and acquire items
that they may have not been able to otherwise.
Let’s say Jim and Diane want to buy some new furniture
soon. Their reclining sofa finally gave
out after 10 years. But after all of
their expenses, they only have $50.00 left over each month for such a
purchase. They found a sofa that they love,
but it costs $500.00, much more than they have available. They have two options here: they can put away that $50.00 each month and
wait 10 months until they have the $500.00, or they can go ahead and buy the
sofa now (with the above offer included) and being making payments the first
month (though it is not required).
And voila! They have
a new sofa, and after 10 months, it is completely paid off with absolutely no
interest charges! They even had two
months to spare.
This is a beneficial way to purchase some items (do you
really need them?!), but let me say that it can be dangerous, too. Let’s say that an unexpected expense came up
in month 5. The transmission went out in
the car, the refrigerator stopped working, or a relative died far away and
plane tickets had to be purchased.
Anything can happen, and if the couple doesn’t have substantial money
set aside for emergencies (transmissions alone cost over $1000), then their
plan to buy the sofa could backfire.
They would need to tap into that $50.00 each month to cover the
emergency expense, and this would force them to enter into the monthly payments
with interest that come 12 months after purchase. Only having a “two-month” buffer time can be
risky. If the sofa cost $300.00, they
situation could be better. If it cost
$600.00 (all 12 months of $50.00 payments would be required), that is quite a
gamble.
So this offer can be advantageous to saavy money users, but
it still has its risks.
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