MONEY OBEDIENCE

A New TV for Baseball Season?

The baseball season is starting, you want to watch it on a new TV and you need to get a new 46-inch TV for $1,500 that is on sale right now but you don’t have the money and it is not part of your family budget. You end up charging the TV to your credit card (at 18% interest per year) and you plan to pay the TV off within a year. You figure you pay off $125 each month, which comes out to $1500 for the year. Unfortunately, your math is just a bit off, because you will still owe money after 12 payments. It will take you another $152 to pay off the TV, the price of the interest charges on your credit card balance during that year (assuming that you don’t have to pay any monthly fees while you carry a balance on your credit card). Altogether, that TV costs you $1,652 instead of $1,500.

Now let’s assume you say to yourself, “You know. I don’t have the money for a new TV in the bank, but I will save $125 each month for a year. I will buy the TV next year for next year’s baseball season.” Again – do the math carefully! You might think you’ll have $1500 in the bank at the end of the year, but you’d be wrong! Again, you have to add in the interest. Let’s say you put $125 into your savings account every month as you planned and you get 2% interest per year. At the end of the year you will have $1516 in the bank. Chances are high that the very same TV will not cost more than $1500. As a matter of fact, if you still want the same TV you can probably get it cheaper since by the end of the 12 months that same TV will be last year’s model.

Which one of these situations is right for you? Most people would probably tell you that it is better to save for a year and then buy the TV for cash without taking on debt. I am one of these people and I live by this advice, too. Some other folks may want to convince you that such an expensive TV is not the frugal thing to do. It may not be called frugal, but what is overspending to these folks is well worth it to you who gets lots of pleasure from watching TV on a beautiful 46-inch screen.

Having said all that, it is even possible that it may be the right thing for you to buy the TV now and to charge it. It is your personal choice. As long as you are aware of the consequences when buying the TV today, i.e. loading up debt, you may make a rational choice that makes such a decision okay. You have to answer the following questions for yourself to decide which one is the best course of action for you.

1. How important is it to you that you watch this year’s baseball season on a new TV?

2. How much pleasure can you get out of the TV in the next year?

3. How would you feel if you did not get the TV now and you waited a year to get it?

4. Is the benefit of owning this TV right now worth incurring debt, adding to your financial stress, and paying an extra $152 for the TV?

I bet you, if most of you are honest with yourselves, you don’t need to buy the TV now. You can wait a year and your life would not be that much different without the new 46 inch TV, right? Or would it?

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