9 Things You Should Be Embarrassed to Finance

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dumb things people financeOur grandparents’ generation never financed anything. In fact, it was considered stupid. If, in 1950, you told your neighbor that you got a super low interest rate on your brand new car, they would have looked at you like you were on fire. Cash was the method of choice for almost every purchase – even houses! Don’t believe me? According to a study performed at the University of Pennsylvania, in 1949, the average debt on a person’s house was approximately 20% of their yearly income. In other words, if their income was $50,000 (in today’s dollars of course), the average mortgage would have been $10,000 (meaning, quite a few people probably owned their home free and clear). Guess what the rate is today! With the average income of approximately $50,000, the typical home mortgage is $147,600, or 295% of the average income! Most people have a mortgage today that exceeds their ability to pay it off. Now that’s pretty stupid!

9 Dumb Things People Finance

For whatever reason, credit is more common than cash today. It’s often a given that people finance their house (I do admit that it’s tough to save up $150,000 in cash to purchase your first home), and I’ll even turn a blind eye to some people financing a modest car so they can get to and from work, but what about all the other crap that people finance? In just a few minutes, I have compiled a list of 9 things that people should be downright embarrassed to admit that they are making payments on.

dumb things people finance1) Smartphones

Ten years ago, cell phones were considered a luxury. Somehow today, smartphones have become the new necessity. This is bogus, which is why I’m ranking smartphones as #1 on the list of dumb things people finance. First of all, if you have a land-line phone at home, cell phones still aren’t a necessity. Secondly, if you do away with the land-line, a standard cell phone (with voice and text only) is all a person really needs. Carrying the internet in your pocket is not necessary. If you want GPS, buy a map.

2) Television

A television is NOT a necessity. If I took away your TV and threw it in the garbage, I suspect that you would learn to survive without it. Perhaps you’d read a book, play with your kids, or go for a hike. If we can in theory do without television, then why are we deciding to finance it? We’re buying this item on credit (because we probably got the 60″ model instead of the 32″), we’re paying interest on it, and it’s plummeting in value faster than you can say, “dumb things people finance”…

3) Furniture

“But Derek, we need to have something to sit on! Furniture is a necessity!” Well, sort of, but nobody really needs a brand new furniture set from the display floor. If you really need furniture, but don’t have the money to pay for it outright, then guess what? It’s time to scour Craigslist. When I was broke, I bought a matching couch and love seat for $75. No financing necessary.

4) Renovations

This is one that I really don’t understand. People have houses that are a touch out of date and somehow this justifies a $25,000 renovation loan? Was the massive home mortgage not enough? You just needed to add to it? This is definitely on my list of dumb things people finance. Save up the cash people, or just deal with the orange shag carpet. It’s not a life or death situation. And hey, if you wait long enough, it might just come back in style!

dumb things people finance5) Kitchen Appliances

This one tag-teams a bit with the renovation item above, but those shiny kitchen appliances have people reaching for their wallets all the time, even when theirs are perfectly fine! They just browse the refrigerator section for kicks, and then see that new model that would look so amazing in their kitchen. Oh, and it’s on sale and could actually save them money because it’s energy efficient! And the loan has suddenly been justified…

6) Washing Machine and Dryer

Okay, so each one of these dumb things perplex me, but this one I really have a hard time understanding. The washer and dryer are often hidden away in the corner of the house or in the basement because they are used for our disgusting dirty clothes, but we all still need the ones that look so amazing they could be on display in the middle of our living rooms.

The big thing a couple of years ago (and maybe still is today, I don’t know) was the front loading washer. All the reviews on these were terrible. They leaked, the seals got moldy, and they really didn’t clean the clothes that well, BUT they looked cool so everyone wanted one. And let the financing begin! The dumb things people finance… Instead of buying those fancy machines on credit, why not find a used pair or a scratch and dent variety for half the price and pay cash? If you have absolutely no money, then go to the laundromat, people!

7) Computer

I work for a fantastic company that provides many benefits to their employees, which is absolutely awesome. One of the latest programs allowed co-workers the option to finance a personal laptop. This is great and all, but computers don’t really cost that much. Can’t you buy a Chromebook for like, $200 or less? And is this computer really necessary? What do we need it for? To check Facebook and Twitter? If you can’t come up with the $200 to buy a computer outright, then you probably shouldn’t buy one. Novel idea. Oh, and if you do truly need it, go to the library – my local branch has like 50 of them.

dumb things people finance8) Engagement Ring

Many of you know that I proposed a little over a month ago, and I’m sure you assumed that I didn’t finance the ring. Well you’re right! If you want to get married and start your life with someone, wouldn’t you want to start it without a huge payment burden each month? If your special someone cares at all about the finances and your future life together, then she probably won’t be too comfortable knowing that a hunk of your spare money is going away each month just because of what’s on her finger.

If you are searching for an engagement ring and can only save up $1,000, then spend no more than that. If you have done your best and your girlfriend gets all huffy about a visible inclusion in her diamond, then you probably don’t want to deal with that for the rest of your life anyway.

9) Medical Bills

Ninth on the list of dumb things people finance is medical bills. Now before you get in an uproar about how I’m completely unreasonable, let me explain this one. First of all, if you or your spouse get diagnosed with cancer and suddenly have hundreds of thousands of dollars worth of medical bills, yes, that’s a terrible thing and is certainly NOT a stupid thing to finance. These outrageous things happen and could not have been avoided. More often though, people manage to have an accident  and sprain an ankle, break an arm, or gash open their forehead, and they suddenly owe money that they don’t have.

First of all, we should all have medical insurance that covers a portion of these accidents. And secondly, we should all have money set aside for random setbacks. This is called your emergency fund. After all, it’s not a matter of IF you’ll have a financial setback, it’s WHEN. If you have absolutely no money set aside for these accidents, then that’s pretty stupid isn’t it? Therefore these $10,000 medical bills that people are making payments on shouldn’t really be a setback. This is just the result of their irresponsible behavior. Most medical bills should be paid for with cash and have therefore made my list of dumb things people finance.

Can you think of any other dumb things people finance? Let me know in the comments below!

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Money

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

21 Comments

  1. You are so right.

    I hate how marketing companies try and make it sound like it’s the “normal” thing to do.

    As for financing a car, my belief is that once you start on the path to financial independence, you shouldn’t have to finance anything other than a mortgage.

    Unless your vehicle completely breaks down at the beginning of your financial journey, you should be able to save some cash to replace it. For 5000$ you can get a decent Honda civic or Toyota corolla that’s reliable. No need to finance anything.

    For me that’s the dumbest thing people finance. I always ask people what their payments are when they show up with a new truck. On average…. 700$ a month. Are you serious? Wow. How do people not realize this is not a smart decision….
    Mr.SelfReliance recently posted..TFSA limit whiners

    • Somehow everyone thinks that everyone else has a car payment, so it’s okay for them to have one too. It reminds me of my friend back in high school. He worked just hard enough to be average, and as long as he didn’t get the lowest grade in the class then he considered his efforts to be good enough. This average mentality drives me crazy! Why do so many people want to be average and nothing more???!

  2. “If you want gps, get a map” – ha! Seriously, are you channeling my dad? Too funny (and true). Great insights – again. Nicely done.

    • Haha, I guess I was just in one of those moods… Maps do still work these days. 🙂 Always good to hear from you, Jim.

  3. Wow Derek you sure did step on some toes on this one. However, I agree with you 100% and the truth does hurt. I have to admit that my wife and I made the stupid mistake with the cell phones last year and I kicked myself each month for it. I can gladly say that we just paid the second phone off this week in full with cold hard cash and reduced our cell phone bill by around $60 a month. I can say we will not make that stupid mistake in the future. That new found $60 goes into our house project fund each month as we are doing some upgrades in our home currently and we do not do any projects until we have the cash saved up so the $60 will help to reach our goals. I have to say using a real map today would really SUCK!

    • Apparently I was a little fired up about hearing so many people finance stupid crap that they didn’t need. Oops! Great job paying off those debts and please don’t do it again! You’ll be so much happier if you finance nothing in life, believe me.

      Regarding the maps, it sounds like a fun challenge to me! 🙂

    • And they turned out just fine – actually, they came out ahead financially, which is more than most of the U.S. can say today. Thanks for the comment, Mike!

  4. Although possibly controversial I like this post. Technically I am financing my smartphone with the new “promotions” that my carrier offers, honestly it just made sense especially since I planned on signing up with a contract anyway. With todays technology a smartphone is a great way to earn extra income, without it I wouldn’t be able to advertise the woodworking projects I make on social media as easily.

    As for an engagement ring, your stupid to finance it. The jeweler that I plan to buy mine from offers interest free financing, but they sell you the ring at retail price. When I asked what the cash price was they were able to discount the purchase by 30%!!!

    • Hi Ryan. Is there any way to get out of the smartphone payments? Can you make a one-time cash payoff? Freeing up that cash flow could make all the difference in improving your financial future.

      As for the engagement ring, you’re totally right! When I was looking for Liz’s, I walked into a Kay’s Jewelers to see what they had and if they would give me a good deal on a future ring. The ring I liked had a sticker price of $4,900. They asked what price I would need to walk out of the store with it that day. I smirked and said $2,500. They surprisingly told me that they would see what they could do. In the end, they brought the price down to a flat $3,000 – 39% off! Since they didn’t hit my number, I walked away without buying it, but it really goes to show you what the mark-up is on financed jewelry!

  5. My wife and I did finance a washer and dryer. But not for the normal reasons. We bought a closeout set where both units cost the price of one. We also financed them for 0% for two years. The reason we did that was because our high yield checking accounts at the time were making few percentage point in interest. We saw no reason not to finance at 0% and leave the money in the bank making interest. 🙂

    • Hi Bryan. Your reasons sound logical, but you created all this hassle to “earn” $60? And don’t forget to pay the washer and dryer off at the 2 year mark. If you do forget, they’ll charge you a ridiculous interest rate for the entire two year period, which could total hundreds of dollars. To me, this seems like a pretty dangerous game to play for $60. Just pay those things off, dude.

  6. Interesting… I financed my current smartphone, but there was no cost difference at all between financing and just paying up front. I have the cash set aside in case I need to pay it off, but right now, that money is drawing (a tiny bit of) interest.

    The only other debt we have is our home mortgage, which is currently substantially less than we would be paying for rent in a similar house. Two paid-up cars makes things nicer.

    Oh, and I don’t even *have* a TV, although I might eventually buy one to use as a 3rd monitor, since they are actually cheaper than a straight monitor — go figure.
    Howard Lee Harkness recently posted..More Traffic = MORE Money

    • If you had the cash, why didn’t you just BUY the smartphones?

  7. I’ve got another one to add to that list – a vacation/holiday.
    It goes something like this ‘I’m working so hard, I deserve a holiday. But I have no savings so I’ll just get a loan or put it on my credit card’ WTF?
    I can’t imagine anything worse than having to pay off a holiday months after the experience is over. Ugh!
    Emma Healey recently posted..How Much Does It Cost to Live in Spain?

  8. Financing a phone? Really? If you can’t pay cash for version six, just keep the version five you bought last year! Jeez.

  9. I totally financed an engagement ring. I put down half. Luckily it was 0% interest and I paid it off quickly, but still. Also guilty on the furniture, but again, 0% interest.

    No longer. Those were the old days.

    • Glad to hear those were the old days Mr. FI! Those 0% interest purchases can sure be dangerous when the due date is forgotten about!

  10. Big bills when having a medical condition is very hard to face. To avoid this, prevention is better than cure. Invest on your health on top of anything else. And I definitely agree with you Derek, why buy a laptop if you don’t really need it? Exactly my way of thinking.

    • The best plan for medical bills is to just create as much wealth as you can while you’re healthy. If you spend everything you earn and then get a medical condition, you’re screwed. This, in its most basic form, is why so many people go bankrupt due to medical issues.


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