Why do we need to upgrade?

Lecture 2

Every day there are television ads, posters and junk mail telling us that there is no time like the present to upgrade your (insert item here). As I mentioned in my About Us page I had all the intention of buying a BMW when it was time to retire the HONDA. We are conditioned by big businesses to always be searching for that next best thing and it’s only an easy process away.

We see NO PAYMENTS for fifty weeks or NO INTEREST for one year and what we don’t understand is that businesses know, in general, that most people are bad at budgeting money so they offer us the enticements of get-it-now and pay later. Most of us find reasons why suddenly we can’t pay it off in time and get caught paying interest and hidden monthly fees. I remember a time when I couldn’t see the football score on the television so I would go and buy a bigger television rather than get my eyes checked.

The same goes for our homes. Do we really need four bedrooms and a pool? When I was single I bought a nice big home with three large bedrooms, two lounge rooms and an office. WHY? I thought “Just in case”. You never know when people come to visit and want to stay. Crazy, right?

And of course, I needed to go buy more furniture to fill it.

Why do we buy?

There are so many reasons why we buy bigger and better stuff and it comes down to our internal reasoning.

“It will make me feel better”

“Everyone else has one”

“It’s a good asset”

“We get a discount if we buy two”

“This should impress her”

It’s time to take stock of your thinking. Don’t be tricked into buying something you don’t need. Maybe it’s time to downgrade and even get rid of some stuff you don’t need.

I know a person who hangs all her dresses with the hanger facing out. When she wears them she puts them back with the hanger facing in. If after twelve months there are any still facing out, she donates them to a local charity. If you have a room in your house that you haven’t been into lately, should you consider a move? One of the richest men in the world Mr Warren Buffet still lives in the house he bought in 1958 for $31,500.

 

Less is more

Having the best of everything isn’t always the way to go particularly when you are buying big ticket items like a house or vehicle. Big buys like this take some form of loan which of course incurs that dreaded thing called interest. Let’s look at some comparisons.

Let’s buy a nice new car for $40,000 and pay it off over five years. The best interest rate I could find (not through a big bank, of course) was 12.74%. So, the total payment over the five years is $55,023 which equates to $15,023 in interest. Let’s compare that to a $20,000 car and the total interest is reduced to $7,879 which is almost half the interest of the first car. Both cars do exactly the same thing, don’t they? I will let you work out the comparison between two houses.

http://www.infochoice.com.au/

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