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Monthly Payments can be a Financial Sink Hole

Monthly Payments can be a Financial Sink Hole

November 7, 2020

Accumulating too many monthly payment plans can sabotage your financial well-being, writes Peter Wastson. 

Things you purchase are often priced in a manner that is too good to resist. That is a significant financial risk.

Buying a car is a perfect example. Assume you are in the market and find a car you like, and the selling price is $35,000.

Perfect, except for one thing. You do not have $35,000.

You know that and so does the company trying to sell you the car. This is where our modern world of commerce is quite creative.

There are financial options that allow you to finance the car and make monthly payments. The sticker price of $35,000 is too high, however the monthly payments seem much more reasonable.

Considering what the cost is every two weeks and suddenly the idea of buying a new car seems like a bargain.

The fact that you already own a perfectly good car that has many years left is not a consideration. A bargain is hard to resist.

This type of pricing logic on cars, the newest and latest cell phone, and hundreds of other things that you can purchase is the equivalent of a financial sinkhole.

Before you know it, a significant part of your paycheck is going to pay for things you have purchased. Often what you purchased was not necessary or there were less expensive options.

Financial planners often encourage clients to use a monthly purchase plan to their long-term benefit. Not to the advantage of the company that wants to sell you something.

Each month, an amount of money is automatically taken from your bank account and invested. That money can compound and grow and eventually be used for example to assist with the post-secondary education of your children or plan for a financially comfortable retirement.

Beware of the temptation of building up monthly payment obligations that could harm your financial security.

Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com