Resist The Urge To Splurge

By Dara Duguay

Many young adults expect to start life's journey with all the worldly goods their parents probably took years to acquire. A first apartment, for example, must be equipped like their parents' home they just left. Sure, moving into an empty apartment may be a shock after leaving a fully furnished home. But this desire for instant gratification can start risky financial habits that result in a lifetime of overspending and debt.

Your parents probably started out with used furniture or hand-me-downs from relatives. New items gradually were added after taking the time to save the money needed to make the purchases.

Today, because of easier access to credit at a younger age than ever before, young adults are able to completely equip their home with all that their hearts desire. Credit allows for instant gratification instead of the waiting period required to save for the outright purchase.

Anyone can visit a home furnishings store and secure an immediate line of credit, allowing the purchase of lots of new "stuff." No more need to suffer with used, damaged or (heaven forbid) out-of-style furniture when new stuff is so easily acquired. Unfortunately, it comes with a hefty price tag after interest payments are calculated.

The story of Janelle illustrates this point. Janelle had no intention of purchasing lots of furniture when she first entered "The Ultimate Furniture Store." She was on a mission only to find a dresser, which she had planned to pay for with money she had saved. However, the salesperson informed her that she could fill out a credit application and qualify for up to $5,000 on the spot. Janelle was encouraged to take five minutes and complete the application because that was the only way she would be able to receive a 10 percent discount on her purchase.

Thinking it foolish to pass up any chance to save money, Janelle completed the application. Her buying expectations suddenly broadened. Why buy only a dresser if she could qualify for $5,000 worth of additional furniture? Besides, she needed a better couch to replace her old worn one. Why miss the opportunity?

Emboldened, Janelle also bought a new white leather couch. It almost filled up her entire studio apartment –- but what a statement it made when her friends came to visit! Everyone said they wished they could afford a couch like hers.

But when Janelle took care of her friend's German shepherd for a few days, the new couch was totally destroyed. The dog chewed the wood legs, ripped holes in the leather and pulled out most of the stuffing. The couch was beyond repair, and would have to be replaced.

When the friend returned from her vacation, she was unable to pay for a replacement on her meager salary. Furthermore, since she had no savings, she had charged more than $1,200 on her credit cards for the trip. Janelle would need to buy another couch on her own.

To make matters worse, Janelle still owed money on her destroyed couch since she had charged the purchase. In fact, in order to afford the monthly payments and keep them low, Janelle had stretched out her loan for three years. Not only did she have to pay for another couch, she was stuck making payments on a couch that was no longer in use.

This story illustrates just one way young adults choose to enjoy immediate gratification. There are many more examples, such as:

• Financing a new car instead of buying a used car
• Having kids too soon
• Choosing a two-bedroom apartment instead of a one-bedroom apartment
• Buying expensive electronics instead of lower-end items, such as a plasma wide-screen TV rather than a small-screen regular set

In our fast-paced world, you may feel that your parents' practice of saving for a purchase has become old-fashioned. The culture now says, "You want it, you got it!" But before you reject your parents' philosophy as hopelessly outdated, consider the benefit of paying cash for a purchase rather than simply charging it.

If a $1,000 television is paid for with cash, it costs $1,000. However, if the same TV is purchased with your credit card at 18 percent interest and you decide only to make the minimum payment each month, it will take you 12 years to pay off the balance! And you will have paid double the original purchase price, since an additional $1,000 would have been added through accumulated interest costs.

Resist the urge to splurge! Take the time to save for a purchase instead of financing it, and you will dramatically reduce the cost. Buying with cash involves patience, but the price of patience is well worth the wait.

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Dara Duguay is Executive Director of the Jump$tart Coalition for Personal Financial Literacy, a non-profit organization promoting financial literacy, and the author of several self-help financial books. Her most recent is "Don't Spend Your Raise: And 59 Other Money Rules You Can't Afford to Break." Her books may be found at www.amazon.com or at any major bookstore.