Biggest Mistake When Buying a Car or House
Sales people are sneaky. You don't need me to tell you this. But few are sneakier than car salesmen. "Let me talk with my manager and see what I can do for you ..." Jerk. You know exactly what you can sell this car for. I saw it listed on your computer screen when you tried to tell me the cigarette smell would "go away with time". So now I have to pretend I'm going home and then wait for you to chase me into the lot or call me the next day with a "very special incentive". The whole thing is maddening. Negotiation is an art-form, and if you're not good at it, just use TrueCar. It's hard to find an easier way to get a good price. But this post isn't about that.
The truly sneaky thing they do is mess with your mentality. The industry is designed to put you in the mindset of "How much can I afford to buy?" And that is the real problem. Home buying is the same way. Realtors and car salesmen both try to get you to check your credit and figure out "How much can I afford to pay?" You start thinking in small increments and saying to yourself, "I guess I could afford $650 a month for a few years." But that number is what you can afford to pay if you don't save and your health is fine and you don't lose your job and your parents don't need help and your kids don't get sick and ...
Buy What You Need, Not What You Can Afford
To quote a commercial from days past, you need to change your "para-dig-em". The core philosophy in sound financial decisions is not buying things you can't afford, and that's great, but you need to take that to the next level. Just because you can afford it doesn't mean you should be buying it. The next time you need to make a big purchase, or even better, before you need to make a big purchase, start figuring out what it is you need. Make pro/con lists. Assess priorities. Figure out what is a need and what is a want. Splurge a little if you've earned it, but don't go overboard. And if you can't afford what you assess to be a need, start budgeting and saving so you can afford it when the time comes.
You never know what's going to happen, what hardships will come or what opportunities will present themselves. Backing yourself into a corner by spending what you "can afford" instead of what you "need" is the path to financial ruin. Don't fall for their trap.