I was talking with a close friend of mine yesterday. He was excited to tell me that he just bought a Samsung 65″ Curved 4K Ultra TV yesterday for only $3,000. As we were talking he disclosed to me that his monthly payment was going to be only $85. He told me that he used his Best Buy Credit card, but did admit that the interest rate was a bit high at 22%.
Admittedly, I gasped with astonishment and disbelief. I couldn’t wait to get home to calculate the true cost of this purchase and to analyze the opportunity cost he was giving up.
The $85 monthly payment is actually the minimum you can pay for this purchase. At this rate, he will be paying for his TV for 230 months (19 years) and pay $4,860 in interest. The true cost of this purchase is not $3,000 but $7,860.
But even on a larger scale, the opportunity cost is much greater. If he invested that same $85 per month in a fund earning a modest 8% for the same 19 years, he would have accumulated $45,600 in the fund.
Sensibility is not an understood word in today’s culture. Do yourself a favor and calculate the true cost before you make your next big purchase. Credit cards place bondage on your life and eliminate the chance for your money to work for you.
Let’s develop a healthy plan so our financial journey is not a rocky ride, but one that will help you prosper and reach your destination with dignity.