As a society I’m not sure we’ve ever been further away from the normalcy of saving up to make cash purchases. We’ve gotten distracted and at times bamboozled into thinking it’s smarter to finance our purchases because of rewards, points, discounts, and various other forms of spending inducement.
Culturally, we aren’t currently at a place in which the primary means of material acquisition comes via money saved over time. We’ve somehow overthought the process of making purchases, which leaves our finances looking like a set of Russian nesting dolls. Consumers’ finances are now unnecessarily complicated, nuanced, and tangled.
If you can’t think of an example in which you recently saved money over a long period of time to accomplish a very specific financial task, then it’s time to force the issue in your own life. Reconnect with one of the most financially satisfying feelings possible — saving your income over time to make a large purchase. Don’t confuse this with saving for retirement or college. Limit your thinking to large consumer purchases.
At the risk of angering the travel-hack-and-credit-card-rewards community and filling my inbox with “you just don’t understand, Pete” emails, making significant purchases with credit card reward points is not taking us to a smarter place.
I don’t doubt there’s some gratification which comes with spending copious amounts of money to earn points to be able to purchase additional items of value, but buying more stuff isn’t really financial stability, nor progress for that matter.
I get it. Using “other people’s” money to make purchases feels smarter than using your own money to make purchases, but unless financial stability is present or adjacent to your quest for points, you’ll just be thirsty for consumption. You’ve undoubtedly heard the old business adage, “you have to spend money to make money,” but I don’t think the Roman playwright Plautus was referencing credit card points when he first coined the phrase.
I never experience more financial satisfaction than I do when I save for years to make a specific purchase. It surpasses every other financial and/or consumer pleasure I’ve experienced. We all want to feel like we are having an exclusive, if not clever consumer consumer experience. That’s why people are drawn to credit card rewards. But the ultimate exclusive consumer experience is now saving to make a purchase.
There are two ways to make a major purchases — credit and savings. You can use credit, enjoy the item now, and pay it off as you go. Or you can save money over time, pay cash, and be done with it. I know how unappealing the second option is, but it’s much healthier than making promises for your future self to rectify.
I’ve got a big ask for you this week. I want you to think ahead at least 18 months, and think of a purchase you will need or would like to make in that timeframe. A car or a house remodel are two good examples of the types of purchases I’m talking about. I prefer a purchase that can continue to add value to your life, as opposed to a single act of consumption such as a vacation. Although, if a vacation is more likely to make you participate in this exercise, then a vacation it is.
Pick the day, yes the actual day, you want to have your purchase fully funded, and then reverse engineer your monthly savings commitment. For instance, if you want to buy a used car for $20,000 on Sept. 1, 2020, you would need to save $555.55 a month every month starting in August 2017. The temptation is for you to create all sorts of reasons why you can’t do that. In fact, if you’re not a regular on the save-money-to-make-big-purchases circuit, then I completely understand.
But to be fair, people who save money to make big purchases aren’t necessarily making more money than you are, they just handle the money they make differently.
It’s also worth warning you about the natural desire to earn the most interest on your savings that you can. While having thousands of dollars earning a very small amount of interest can be frustrating, you can’t let it distract you from the point of the exercise. Don’t make this about interest. As boring and slow as the process may seem, the glory comes when you lean into the slow and boring process. Credit purchases and going into debt happen because you are moving too quickly.
If you need additional inspiration, ask your friends about a time they made a large purchase with money they saved over time. Listen to the tone of their voice when they tell you the story. It’s much different than the voice of a person who talks about their car payment or HELOC payment from a home remodel. Go against the grain. Slow down and make your purchases the old fashioned way — save for them.
Peter Dunn is an author, speaker and radio host, and he has a free podcast: Million Dollar Plan. Have a question about money for Pete the Planner? Email him atAskPete@petetheplanner.com
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