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Paycheck Chronicles

Delaying Purchases Saves Money

I was chatting with my sister the other day, and I made a profound realization:  for years, I have been using this nutty military lifestyle to help me delay  or minimize purchases (usually until the next PCS.)  For example, "next time we move, we'll throw out that ratty carpet and replace it at the new house" or "we'll just buy this very old car to get us by until we move again."  I'm sure many of you do the same thing, never thinking of what a smart financial strategy you are using.

How is this financially smart? Delaying purchases changes your financial situation.  In the simplest of forms, let's say you want to buy a new sofa set that is going to cost $1000 and you can afford $50 each month towards that purchase.  You could go out and buy it today, put it on a credit card at 12% interest, and pay $50 each month.  The first month, you'll pay $50 and accrue $10 in interest.  The second month, you'll pay $50 and accrue $9.60 in interest.  This will continue and at the end of the first year, you will still owe $492.70.  You will also have paid $92.70 in interest.  By the time you finish paying for the sofa set, at the end of the 23rd month, you will have paid a total of $121.35 in interest, bringing your total purchase price up to $1121.35 cents.

If, instead, you decided that you could live with the old sofas until you moved again, you could put that same $50 in the bank each month.  If it were two years until you moved, you would have $1200 saved up.  You could buy the sofa in full (making sure to ask for a cash discount) and still have $200 left over.  Same sofa set, same cost, but you come out $121 ahead by waiting the two years.  In this example, in fact, you wouldn't even have to wait the whole two years as you would have saved enough money to buy the sofa set in cash after just one year and eight months.

In this example, it is only $121, but what if you applied this to lots of your purchases?  Everyone buys things in life:  clothes, furniture, cars, electronics.  If you postponed each purchase by a year, the difference over a lifetime could be amazing.  Obviously, not every purchase can be postponed, but think about putting off the purchases that can wait, even just a little.  The long-term benefits are worth so much more than the wait.

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