2:13
Paying cash isn't free. When you save up and spend, you lose the interest that money could have earned, which is a hidden cost. Both savers and borrowers can end up depleting their resources and damaging their retirement.
Paying cash isn't free. When you save up and spend, you lose the interest that money could have earned, which is a hidden cost. Both savers and borrowers can end up depleting their resources and damaging their retirement.
Is cash really king? What's the impact of financing your major purchases as a saver? First things first, you have to build up a pile of savings over time. Essentially, you have to make some form of regular payments over time into your saving or your checking account. Then major purchases are made from the account and the account drains to zero. Let's take a look. Here's an example of the saver. They start by making payments to build up a pile of money that they can utilize. Then they drain that pile to go and accomplish the objective of buying their next major purchase. Whether it's cars or education or vacations, renovations, even investments, we're constantly building up and up and up and up and then draining back down to zero. You see, you work and work and work to build up the savings, hoping that life events don't get away in the process. And if you're successful, well then you drain those savings and you go make that big purchase. You're always chasing back to zero. So even when you pay cash for things, you are still financing the purchase. You're not paying interest to a third party bank, but you are giving up the future potential of interest earnings that your pile of savings would have earned. As a cash buyer, you impact all of your tomorrows. That includes your future retirement account and your legacy for the generations that follow you. You owe just like the borrower does. You have to be dedicated and consistent, saving up again with payments so that you can repeat the process next time you need to make a big financial decision. If you don't, you will end up going backwards into debt with someone else's bank all over again. In other words, you finance everything that you buy. You're either going to pay up interest to someone else's pile of money, or as the cash buyer, you will give up the interest that you could have earned on your own pile of money. In both scenarios, your retirement account suffers.
Next up, in video three of our four part series, we compare the saver and the borrower and how they both end up in a race to zero with nothing left over for retirement.
