(guest post by William Cowie)
Debt is nothing but impatience.
To prove this mathematically is easy. After doing that we’ll look at some of the intangible costs and what to do about them.
A. The Math
Let’s say you want to take a cruise and it costs $5,000.
Let’s say your budget allows you to pay $200 a month. If you save with zero interest, that’s 25 payments, a little over 2 years. If you put in on a credit card, it will take you more than 30 months to pay it off — 5 extra months of making payments. Only because of interest.
Note the only difference is time: cruise now or cruise later. Same cruise. The only reason you’d spend an extra $1,000 is impatience.
2. Other Money
It’s not just interest you save with patience. A year ago the iPhone 4S was the hot thing. It was a good product last year and it hasn’t changed. The only thing that changed is what we think of it. Last year we thought it was hot stuff. This year it’s passé. But cheaper.
Same with movies. If you wait a year or two you can see today’s hot movie for a dollar instead of $20. The popcorn is a lot cheaper, too. The only difference is time.
So, impatience is expensive. It gets worse.
If your mindset is “buy now, pay later,” you never do it for only one thing. You’ll do it for more than one item until your life consists of “making payments.” Every month it’s the bills, and: can I make it?
What if your job sucks? Can you afford to quit and look for a better one?
Why not? Your freedom to do the thing you want is gone. Because you need to make the payments.
Foregone opportunity is another hidden cost of impatience. For example, a neighbor is forced to sell their home while the market is really bad. You know, everyone knows, the market will recover, because it always does. If you jump you can get a killer deal. But if you’re in debt you can’t. You miss out on the opportunity to make another $50,000 or more, without any extra work. Because you were impatient.
These less obvious costs of debt are often a lot bigger than the obvious ones.
But they all boil down to one single thing: impatience.
Debt Is Nothing More Than Impatience
How impatient are you? Chances are the answer will tell you how much of a problem you have with debt and spending.
It’s a lot easier to catch a snake if you cut its head off. Same with debt. If you punch impatience in the face you have a much better shot at killing the debt monster.
Remember: it’s the same payment every month. Either you pay a bank or you pay it into your own savings or investment. One way is the way of freedom and the other is the way of servitude. Same payment. The only difference is impatience.
Don’t you want to have more money and have more freedom? Without having to win the lottery?
Punch impatience in the face.
How do you do that?
1. Watch What You Watch
Yes, the new iPhone 5 is the hot thing and everybody’s talking about it. Everywhere you look there’s a new article about it.
Don’t read it. Why not? The more you read about it, the more you’ll want it. It’s human nature. Find other things to read and watch. Don’t make it hard for yourself. Just find something else.
2. Change Your Interests
One of the big benefits of being patient and having cash is you can pounce on terrific opportunities. If you have cash you are in the minority, so there’s not a lot of competition where you operate.
But the nice deals aren’t on billboards; you need to hunt them down. By starting early and playing hard to get, you’ll eventually know where the good deals hide out. Start by going to foreclosure auctions. See how they work. Get a feel for what to expect, what’s reasonable and what not. Talk to the other people there. Find out where they go to find deals. After a few months of lurking at these places, you’ll begin to get a feel for what’s a bargain and what not. And sooner or later there will be one that others pass on because they have other interests.
Picking up a foreclosed home, then renting it out for a year and selling it for a $70,000 profit brings an entirely different class of jolly than having the latest gadget or putting a cruise on a credit card. But it takes patience. After you’ve done it a few times, you can take a cruise around the world on the QE2 and still have money in the bank.
If you still want to.
It All Comes Down To Redefining Fun
It’s very simple: impatience carries a premium, patience carries a discount. Which do you prefer?
And the benefits of impatience are often very fleeting, while the benefits of patience last a lot longer.
Punching debt in the face starts with knocking out impatience. Here are your gloves.
William Cowie is a retired businessman spending his time coaching everyone who wants to listen about managing their money on his Drop Dead Money blog.