Common Financial Mistakes Involving Our Lifestyle, by Ron Blue

Not too long ago, I stopped in a jewelry store to have a ring sized. I was standing at the counter when I noticed a well-dressed young man purchasing a Rolex watch. A Rolex watch has become--along with the Mercedes or BMW, a symbol of success. This man was purchasing a relatively inexpensive $2,000 Rolex (many sell for over $10,000), Yet, when the sales contract was written, I noticed that it was for approximately $4,000. I thought there must have been some mistake. It turned out that the price of the watch was $2,000, and the finance charge was an additional $2,000. This man had purchased the watch with $285 down and a monthly payment of $235. When he walked out of the store with that watch on, he was giving the impression that he could afford a Rolex watch. Yet, could he really? He was making the mistake of having a consumptive lifestyle.

A second lifestyle mistake is to spend as needs come up, rather than according to a plan. If you are sincere about controlling your lifestyle, you must set a budget. Nobody likes to talk about budgeting. It's a nasty word to many. 

Perhaps you tried a budget--and failed. Or maybe you're one of the hardy few who kept at it and made it work. If so, I would guess that you were committed to the process for at least two years. If you are not committed to living on a budget for two years, then don't even start because you'll get frustrated.

The first step in setting a budget is to ask yourself what you are currently spending or have spent in the past. Second, what would you like to spend? What's your plan for the next month or the next twelve months? Third, how are you doing in relation to what you would like to spend? Then, fourth, set a budget.

It takes approximately two years to reach step four. It may take six months to identify what you have spend, another six months to figure out what you would like to spend, and then a year to see how you are doing regarding what you would like to spend. Then you are ready to set a budget.

The budgeting process will decrease your living expenses--without question--because you will begin to understand the implications of overspending and having to allocate resources among various categories. However, I do not believe a budget should ever become anything more than a guide. 

Treating a budget like the law is one reason many people fail--especially if one marriage partner likes to live on a budget and the other doesn't. One will club the other over the head with the budget. Then it's easy to abandon it just to avoid the conflict. If you really are serious about limiting your lifestyle, you will need a budget, and a budget requires self-discipline.

After you have followed a budget for about four years, you will have established such habit patterns that you can probably forget formal budgets for the rest of your life. That's what happened with my wife and me. Once the habit patterns were set, budgeting happened naturally. Are you willing to pay the short-term price in time and commitment for the long-term benefits?

Do you know what is the least expensive car you can drive? The answer is very, very simple. When I was thirty, and not yet a Christian, I bought a new Oldsmobile 98--even though I was dying for a Cadillac. Since I felt owning a Cadillac at age thirty was a bit pretentious, I decided I'd wait a couple of years. But two years later I became a Christian and my value system began to change, so a car became less important to me. Before long, I was in full-time ministry in Atlanta. By that time the Oldsmobile was five years old with about 110,000 miles on it. When it reached 150,000 miles, the seats were worn out, it was rusted, and I hated that car. It just didn't fit my image of myself! I lusted after new cars. 

So as an accountant, I said to myself, "I'll just do a little research, because it's time to buy a new car." I began to look for the cheapest car one could buy. I compared all of them. And I found the cheapest car that I could ever drive was the car I already had.

Usually when the repair bills go up, we think it's time to sell the car because it's costing so much to maintain it. But that's not true. I was spending a lot of money on repair bills for that Olds, and it got only eighty miles to the gallon. But it was paid for, so I had no interest cost, no depreciation--it was depreciated to the bottom--and very little insurance cost (who cares about collision insurance). My license fees were low, too. I paid more in repair bills and gas, but when I offset that with the other great savings, there was no comparison. The cheapest car I could drive was the car I had.

The higher the cost of the car, the more costly it is to drive, even if it doesn't depreciate much in value. People tell me all the time about their new "investment"--a 445,000 Mercedes. I always ask, "Why is that a good investment? How much is that new Mercedes going to appreciate in value?" I have yet to find a Mercedes that appreciated in value. At best, it may hold its own.

You see, a car is ultimately an ego decision. Logic does not mix well with buying a car. Most people buy cars with their heart instead of their head. And when another's ego is entered into the formula, the results can be far from satisfactory.

There may be other factors involved in buying a car, such as safety or the need for a bigger car for a growing family. But almost always you are better off buying one that's slightly used--even with the possibility of repair bills--because new cars depreciate so much.

If people persist in wanting to buy an expensive car, I tell them I have just one piece of advice: pay cash; don't borrow to buy a car. You know what the response is? "I can't afford that!" That's right. They got the point. They can't afford it. You see, people don't buy cars today based on how much they cost--they buy them on the basis of the finance cost  and the monthly payment. The bottom line is that the cheapest car you'll ever own is the car you presently have.