Month: October 2016

Since Henry Ford began mass production methods that allowed the working man or woman to earn enough of a wage to support the family and afford the product they were producing, money lenders have been scheming how to get any “expendable” income from those men and women.

They introduced the installment load to attract buyers to the “affordability” of their products. They promised “time savings” such that there was the possibility of increased productivity. The washing machine, the refrigerator, the gas stove were such things. The method was acceptable because it allowed one to realize the products immediate benefit while delaying the cost associated with it. The trap was set.

To make matters even more difficult, the terms included the requirement to pay on an exact time regardless of circumstance with additional cost should payments be late.

Now that the trap was set several rates of money movement were hidden. Loading your future with debt payments hides the cost in time and money required to service the rate of payout. Remember we pay taxes, get sick, get laid off, and idle away hours of each day “accidentally” or certainly without planning for it. We lose sight of how much we have and how much we have to give up. The rate of that is the most important thing. Cost is actually obscured in the payments method of living. Those folks that have borrowed to acquire something seldom know the total cost of the product or service. On a automobile loan you will find it on the line that says “Total Deferred Payment”. It’s very much more than what you thought you paid for the automobile. It is often two and three times what you think you paid.

Today people think what is the payment and not what is the cost. The reason is they do not have very much of their income and wealth to spend as they have little more than their costs or payments on which to live. Costs and payments for transportation, food, shelter, clothing, and medical expenses outstrip most incomes. Taking the credit payment low road eases that in the short term. It however darkens the future with risks. Saving in order to afford seems out of the question for most people. It doesn’t seem to be impatience. It seems as if we have given up in the face of such huge numbers.

Henry Ford wanted to produce an automobile the workers in his plant could afford. He paid them enough to do that. That remained true until the seventies when automobile companies began breaking wages down to their present day half of what they once were. At the same time prices of rolling stock skyrocketed. Today they cost as much as a good home. How could that be? In the seventies GM made all it’s money financing automobiles and trucks. Today they make it manufacturing, selling, financing, and maintaining them. Middle class salaries and wages do not make enough to afford “save and buy” purchases so people resort to “borrow and buy” purchases. The art in the financial scheming is that it appears each month that the “borrow and buy” is cheaper. It is only true if you do not add up all that you pay for something; the true cost.

Going back to the basic concept of time and money resources, one has to consider how they will spend their time and money to meet a need. Every one invests some time to end up with some money. The money buys things. It can buy things that save time by increasing productivity. The problem with “borrow and buy” is that it will take much more time and much more money to actually pay the costs of borrowing to get the money needed for the costs of the goods or services purchased. This full cost is hidden in payments that are made very small so they fit in to meager budgets. The loading of future time and money to make those payments is not fully recognized. The time, taken from your future, that it will take to clear those hurdles is completely invisible.

So how do you get out of the trap? Save to buy! Stop borrow to buy! If you are impatient you are lost. You will walk back into the trap. Getting out takes the effort you have committed to plus the effort to save to later buy. Many people are in a position so bad that they cannot even keep up with the interest payments on what they owe. They should bankrupt and start clean. Everyone else should get to work on saving to buy.