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The evil instalment schemes and their minions.

Friday, June 27, 2014

Uncle saw a $5,000 LED TV.

Uncle thought, 

"Wah! So nice! So expensive leh. Cannot afford."


Then, there came a helpful salesperson.

Helpful salesperson, 

"Don't worry, sir. You can pay for this in instalments. Over a 60 months period, you pay only $83.34 a month."

Delighted Uncle, 

"Wah! So cheap! I can afford it now! How do I do this?"

Beaming salesperson, 

"Come with me. We just have to complete some paperwork."

Uncle, that TV is not any cheaper! 

You are just taking a longer time to pay for it! 

Here is a 32" LED TV for only $388!


Why you ignore me?

In general, don't use tomorrow's money to pay for today's consumption. 

If we cannot afford it today, we shouldn't buy it. 

We should beware of the evil installment schemes and their minions as we journey towards financial freedom.


"The road to success is dotted with many tempting parking spaces.”   W. Rogers

Related posts:
1. Two questions that build wealth.
2. If we are not rich, don't act rich.


Dexter Choo said...

haha but tomorrow's money is worth less than today's right XD

AK71 said...

Hi Dexter,

That is a perverse take on things. LOL. ;p

Happy_heart said...

But I always do instalment for the courses I attend,based on what I can do with the extra 1 or 2k,I could have use it to invest and earn some money.

AK71 said...

Hi Happy_heart,

The blog post was written in the way it was written to generate some discussion. ;)

"In general, don't use tomorrow's money to pay for today's consumption."

The words in bold are key to understanding what I am trying to put across. ;)

I consider education an investment item, not a consumption item.

Even in consumption, there will be exceptions to the rule. For example, housing. :)

LG said...

What about those 0% installments from the credit card companies? Is it better that you're not paying upfront and therefore can put the as yet unused money to good use?

AK71 said...

Hi LG,

I have never used one of those before. So, I don't know much about them. :(

Generally, I am conservative when it comes to debt and try to avoid it especially in funding consumption items.

I wrote a piece on this some time back: Is good debt always good?

Unknown said...

It's not the 0% interest installment per say, but the fact that people are more likely to purchase a $5,000 item with an installment plan compared to an outright $5,000 item purchase due to the perceived affordability.

AK71 said...

Hi Almond,

With easier access to debt, it is safe to assume that the financially less prudent would be more likely to fall into a hole. Trapped into paying for the next 5 years for all the electronic appliances at home with no savings to speak of? Not a pretty picture.

The financially prudent could calculate the benefits of such debt if they could use the money freed from immediate payment to generate higher income. However, it is important to realise that they are taking on risk to do so.

Of course, I understand that it is a matter of personal risk appetite too. So, there is an element of subjectivity even as we try to stay objective.

So, although I understand the argument of having good debt especially in the area of real estate investment, if people who make use of leverage are drunk and not sober, they could get a rude awakening.

We should have the ability to repay the debt to a large degree, if not in full, if things should sour for some reason. If this ability is lacking, then, could we be taking on too much risk?

I always say that debt is a necessary evil sometimes. So, if it is not necessary, I don't use it. :)

Unknown said...

Hi AK,

I absolutely agree with you. Erm... Actually what I'm trying to say is that 0% interest installment is not as good as some people thought it to be due to perceived affordability. It tends to make (some) people spend more than they would have compared to a full payment purchase. :)

AK71 said...

Hi Almond,

Thanks for reminding me. I started out with the intention of simply agreeing with you but somehow my comment just grew into a monster that walked off the path. :(

Please pardon my ageing brain. Cham liao. -.-"

E H said...

I wonder if companies like Courts ever bother to check the financial bacgrounds of those whom they offer installment plans to.

AK71 said...

Hi E H,

Who said anything about Courts? Did I mention Courts in my blog post sub-consciously? ;p

I wonder too but it is one way they ramp up sales. In the event of defaults, they get to repossess the merchandise. It is not their job to ensure that customers are financially healthy, I guess. -.-"

AK71 said...

I met an ex-colleague recently.

AK says...
Come, I buy you OCK curry puff and teh-o. Long time no chat.

J says...
You buying of cos good lah.

While munching OCK curry puff and sipping teh-o, J's phone rang.

J looked a bit worried when answering the phone.

"Yes. No. This month cannot. Next month, can?"

When I asked what happened? J said she was a bit late in some instalment payments.

Apparently, her family just moved into their new home and bought new furniture and appliances mostly on hire purchase.

Aiyoh. I didn't know what to say.

Much easier to blog about such things. :p

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