Have you ever had insomnia and stopped by QVC late and night and thought to yourself “I can afford 5 payments of $9.99, no problem!” while not noticing that the full price of what you are thinking of buying is actually $50? Yea, me too. At least I used to, but I have gotten myself away from it…thankfully. I used to wait for the Sunday paper to check out what Best Buy and Circuit City had on sale this week, and what kind of promotion they were running to make the payments as cheap as possible. I figured I would “afford” anything as long as the payments were spread out. Boy was I wrong…and it took a lot of spending to figure it out.
Let me give you an example of a stupid move I made back in college. One day I decided I would like to have a home gym, so I went to what was then Service Merchandise and scoped one out. I found the model I wanted and then the salesman told me I could break up the payments into monthly installments so it would be easier to pay for…all I had to do was sign up for the store credit card. Sold! I signed up and took home my new gym, and then spent the next 12 months paying for this stupid gym I used 7 times. I was not that bothered by it at the time because I was paying “only” $X.XX per month, but thinking back I could not believe I did not consider the actual price of the item, but only what the monthly cost was. I even wrote this as my dumbest purchase over at DebtKid. Ridiculous.
This happens all the time with automotive purchases, too…people only say “I want to spend $300 per month, what can I get?”. Well, if it is a good salesman, you can get almost anything you want as they have ways of structuring down payments and the length of contracts. But by not paying attention to the bottom line of “$19,500″ and rather only seeing “$300 a month”, you lose track of what it is you are paying for something.
That was a tough lesson for me to learn, but it taught me to always know what I am paying for something – the full 100% price that the item costs. Even if I do break it into payments (like a car loan, for instance), I still insist on knowing exactly what I am paying for the car. It’s the only way to really know how much money you are spending.