Thoughts on financing luxury purchases

[disneysteve]

What do you think about borrowing money for a luxury purchase? Personally, I tend to be of the opinion that luxuries should be purchased for cash in most cases. I guess there are exceptions like real estate such as a vacation home since there can be investment advantages to leveraging your money in some instances. For most stuff, though, like fancy cars, jewelry, vacations, electronics, etc., I think if you can't afford to pay cash, you probably shouldn't be buying the item. Am I wrong?

[maat55]

My debtfree lifestyle covers most all kinds of debt, especially luxuries. My only debt loophole would be for things that appreciate in value.

[MonkeyMama]

I am with maat55.

I wouldn't really borrow for anything, personally. Which means I certainly would never borrow for a luxury item.

I could at least understand borrowing money for a first car purchase (something very modest), a reasonable student loan, or a reasonable fixed mortgage. I really don't understand borrowing for anything else. Maybe a vacation home, but I would have to have some pretty substantial means or assets to spend so much on a luxury.

[cschin4]

I think it is fine to borrow for a home, as long as you are not borrowing more than 2.5X your income. When you get up to 3x or more, it is a home that is no affordable and whoever is buying it is going to be sorry and broke all the time in most cases.
I think financing a car is fine as well. We need cars to get around, to go to work, etc. And, I see no advantage to paying cash for a car. I bought my last new car in cash and really didnt see the point. I could have kept that chunk of cash in the bank, in an account, etc. So, now i will just finance at a low rate instead and keep my cash handy. Again, one should buy a car they can afford.
For anything else like furniture, computers, electronics or other stuff. Cash is the only way for me. I will put it on a CC but I pay off the CC in full at the end of the month. I always pay it off in full and have never run a balance. If i would have to do that, then I cannot afford the item. I don't put anything on the CC that I cannot pay cash for right now. I just use the CC as a matter of convenience.

[watsoninc]

I'm with maat55 too. After working so hard to become debt-free, there is next to nothing that I would even consider financing. My primary exception would be to purchase one's primary residence.

[am_vanquish]

I' okay with using interest-free credit offers for luxury purchases. We bought a new LED-tv for Xmas last year and put it on a Best Buy credit card for the 3 years, no interest offer. Of course, we could have paid cash and we can still pay thus bill in full at any ti
e. But, what's the point if it's not costig us anything?

[BlackDiamond]

I agree with houses & cars.

I would also consider a smaller luxury item IF I found a very good deal on it (ie. a going out of business sale where the item was 50% off what it would normally cost or something) and I knew I could pay it off at a low interest rate within 3-4 months. Assuming the overall savings of the good deal would not be negated by high interest.

The other thing I would consider is something that there was only one of that I knew I would never find again.

Keep in mind, in the anectdote below, I didn't buy something I wanted that there was only 1 left of, and I would have been paying in cash anyway.

I DID NOT purchase a $99 jacket from a local store this past weekend and I regret it. It was exactly what I've been looking for in a winter jacket for the last 3 years. I've worn the same jacket (which I don't like but it's functional) for the last 5 years. It's falling apart. I will need a new one soon. The $99 one was 100% my style, very warm, handmade (and well made) and there was only one left in my size. Buying it would have also supported a local small business that I like. I saw it early Saturday evening and debated. I had the cash too, but I knew I shouldn't be spending $$ on luxury purchases. After walking around town for a few hours enjoying the nice night, I decided I still really wanted it and that it was a worthwhile purchase since it was a functional item I needed anyway. It was gone when I went back and I just felt very bummed out and sad for the rest of the night. I asked the store owner if they would be getting any more and they said no. He did give me the designers contact info so I might call her directly and see if she has any left.

[LivingAlmostLarge]

I don't know Steve. That's my point about my car thread. The car is a want, not a need. We can make do with our current cars. But then again, I know it will break down eventually, sooner rather than later, so we need to start planning.

We need to pick a car we want and then determine used or new. And what sort of cash we need, and will likely not have. Ugh.

[disneysteve]

I don't know Steve. That's my point about my car thread. The car is a want, not a need. We can make do with our current cars. But then again, I know it will break down eventually, sooner rather than later, so we need to start planning.

We need to pick a car we want and then determine used or new. And what sort of cash we need, and will likely not have. Ugh.

Cars are one of those items that are tough because they blend want and need. I need a car. No debating that. What kind of car I need and how much I need to spend is a different issue, though. I can get to and from work just fine with a new $10,000 car or a $5,000 used car, but I'm not likely to buy either of those items. When it comes time to replace my current car, I will likely spend in the neighborhood of $20,000, meaning at least $10,000 of that should be coming from my "wants" budget.

[MonkeyMama]

It's pretty simple to pay cash for cars if you start with something modest and keep it a long time. (Why I mentioned financing a first car only - a very modest one). Anything more than that is just luxury, in my opinion. I don't understand paying all that interest. The thing is you get ahead of the curve instead of behind it. I haven't had a car payment since I was 17 - plenty of cash in the bank. I don't buy $15k+ vehicles, though.

[wincrasher]

Read a good article on Suze Orman today. She says she only buys new stuff with new money. So if she wants a fancy new jacket, she earns the money to buy it. If she sells her old jackets, that money goes into her investment account. An interesting philosophy that I like.

Dave Ramsey says (if I remember correctly) that your "toys" shouldn't exceed 1 year's income. That also makes alot of sense. So your Rolex, sports car, motorbikes, or whatever total value would not be over that amount. And of course, you never borrow to buy toys. Especially if you already have credit card debt.

Yes, we all need a car. Most people cannot save enough to buy one outright, no matter how low the price. But it's a big difference between borrowing to buy a Taurus and for a Jaguar.

[MonkeyMama]

Yes, we all need a car. Most people cannot save enough to buy one outright, no matter how low the price. But it's a big difference between borrowing to buy a Taurus and for a Jaguar.

Anyone who perpetually has a car payment can pay cash for cars if they just kept one a while after it was paid off. I think the thing is most people don't *want* to pay cash for their cars.

[ceejay74]

I think it's OK in limited cases, if you have multiple plans for paying it off. Example: Our stove was breaking down, so we put it on a Sears card. We have an emergency fund, but I feel we can pay for it within our normal budget by the end of the year, without dipping into the EF. Right now I'm focusing on paying off our credit card, which does charge interest, but I could be paying off the stove if I were worried. But if something happens where we can't pay it off through our budget, we have our EF to pay it off with. One way or another, we won't pay a cent of interest on it.

[disneysteve]

we all need a car. Most people cannot save enough to buy one outright

I definitely disagree with that. I think most people CAN save enough to buy a car outright. They just choose not to. Or they choose to buy a car that is so costly that they need to borrow money in order to afford it.

I think one's first car purchase usually needs a loan since you are just starting out and may have very little saved. After that, it is not difficult to pay cash for the 2nd car if you plan for that along the way.

[jIM_Ohio]

My debtfree lifestyle covers most all kinds of debt, especially luxuries. My only debt loophole would be for things that appreciate in value.

Using this logic you could finance high end jewelry

I have paid cash for my 3 largest jewelry expenses
not right or wrong, just sayin'

My stance is that it "depends"
someone like Bill Gates may finance more than I do
I probably finance more than some on this board...

I always consider cash flow... if I finance, I want to finance for a short period of time. If I have to finance the next time I get the same item (like a car) I financed the next time with 12 months less on the repayment schedule, to point where cash flow is eventually freed up and I can pay cash for the item.

I have financed many things when I was younger. As I get older I am less likely to finance anything short of a vehicle, house or important debt. If I do have to finance something, I will always consider cash flow- I want a significant amount of free cash flow every month, so if financing taps into that, then the debt must be paid off fast, or I should not finance to begin with.