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delayed gratification

One of the biggest problems facing the world today is our lack of patience. I am just as guilty as everyone else. It seems we are incapable of exercising patience and waiting until we can actually afford to purchase something before we pull the trigger and get it. By afford I mean actually pay cash for the object or service we desire. We want gratification and we want it now! Not next month, not next week, not tomorrow, we want it now. This requirement to be immediately gratified costs us thousands in interest and lost opportunity costs.

We make attempts to justify our impatience like how much more productive we will be with that new iPhone, or how much easier it will be to pick up the kids if we had a third row seat. In either case there is no reason why you can’t save the money up and pay cash for the iPhone or even a new car. The only obstacle in your way is time and determination. If you are determined to make the purchase and you really think your life will benefit from it then you shouldn’t have any problem socking the money away to make the purchase.

The easiest way to do this is to set a specific monthly goal amount to put aside for the purchase. If you want to have a new, well new to you anyway, car then take the estimated amount of the car and split it out into monthly payments which you make into your savings account setup specifically for this purchase. You really need a separate account so you don’t get confused or tempted to use other funds for your purchase. In this manner you are actually earning interest on your payments as opposed to paying it, you can get your car and make money in the process. Like I said the only thing standing your way is time and determination.

Lets say you want to buy a used car worth $25,000.00 that is a lot of money and you probably don’t have it right now. If you need a new car immediately get something you can afford to pay cash for and then immediately start saving for the car you actually want. Instead of making the car payments + interest and carrying the debt you will be on your way to doing something most people only dream of.

If you take the $25,000 car and assume your trade-in is worth $5,000 when you go to trade it in you are going to need $20,000 cash to pay for your car. The typical car loan runs for 5 years so you could take that $20k divided by 60 (60 months in 5 years) and you would need to make payments of $333.33 a month to get your $20k in 5 years. If you want it in 4 years it is $417 in 3 you need to pay $556 per month. Using this same scenario but getting a 36 month loan you would be paying around $2,300 in interest at 7.16%APR.

Using this method you would never have to get a car loan again. You can apply similar principles to any large purchase you plan on making in the future. If you are looking to buy a new TV but don’t have the cash, figure out how much you are willing to pay and how much the monthly payments would be and set aside that money in a savings account dedicated to that purchase.

Delaying your purchases until you can pay cash will not only save you in interest payments but could earn you interest income and reduce your stress brought on by looming debt payments.

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