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People do it all the time, including me. Dumb money moves occur on a daily basis. Some people learn from them, yet some people don’t learn from them at all and continually repeat the errors. The majority of these tend to occur when someone starts their first job right out of college. We can blame it on the educational system or the media, or marketers, or the banks…the list goes on and on.
At one point in time, financing a vehicle for more than three or four years was unheard of, now it’s common place. The pitch is the same, “would you rather pay $400 a month or $500 a month?” People tend to concentrate on the payment as opposed to the terms of the loan.
Recent college grads may think they are doing the right thing by keeping the payment lower but in reality you are paying thousands more in interest to the banks. We tend to rationalize this by saying, “We’ll just pay more each month to get it paid off sooner.” Unfortunately we usually don’t.
This tends to happen when we graduate because we are given six months after graduation to not pay the loans. We get used to not making the payments and when they come due, the lender offers to defer them. What we don’t account for is that the interest continues to accrue or that the interest we pay on the loans is tax deductible for the first five years. Deferring the payments is the quickest way for the balances to increase which can hurt when it comes time to purchase a vehicle or a home.
When you are 22, retirements seems so far away. In many instances people would rather have the larger pay check as opposed to having ten to fifteen percent put in a 401K. Worse yet, some people miss out an opportunity where the company matches a percentage of your contributions. It is just like saying NO to free money. By postponing contributing for a few years, you can postpone retirement for several more. The more you put in early, the more time those funds have to increase in value and you will also receive a tax break.
No you don’t, or at least not yet anyway. Too often people graduate from college and are ready to live it up. I know this was tough for me because for the first time I was paid every two weeks, not on a daily basis like when I was a bartender in college. I didn’t live on a budget and turned to the credit cards to supplement my income. Friends of mine would sign leases on apartments they couldn’t afford or purchase vehicles that were way beyond their means because they didn’t take time to crunch the numbers. Know ahead of time what you are going to make, when you are going to get paid, and write down your expenses.
Rob Taylor
Rob Taylor is a contributing author for A Straight Talk on Debt. Rob tells it like it is when it comes to the latest debt industry news and shares his advice on personal finance.
Or...Don't ever buy a car unless you pay cash!! Or anything else, except maybe a home!!!
Lesson learned! Never go into a car loan upside down, meaning that you buy a car and still haven't finished paying on a prior car loan. They tack it on to the end of the new car loan, thus prolonging the life of the loan and costing you money on top of money!