Instant Gratification

I had to write this for an article in my job's weekly newsletter back in October 2008. I figured rather than let it be forgotten I would post it here. So....HERE! :)


We currently live in an age of instant gratification. When we want something, we not only want it now, we NEED it now. People used to save for a car, home, furniture, or other major purchase for months or even years beforehand. However, because of our instant gratification lifestyle, a lot of people buy what they want now, putting the purchase entirely on credit. This seems like a wonderful solution for our now mindset. For example, I don’t have to wait to enjoy my new 2009, state of the art, cooks, cleans, and does laundry, all accessories included, off the lot vehicle. I get to take all of my friends around in style and I’m feeling pretty great about life. My $800/month payment is just the cost I pay. Since my financial institution has approved my loan and my debt to income ratio is low enough, I must be fine. While all of this may be true, if I had saved that money before hand, I wouldn’t have to come to the realization that it’s hard to part with my $800 every month now for something I already have. Maybe I would have realized that since I’ve worked so hard to save that money, that the 2006 model that only cleans, is more than enough to satisfy my needs.
By saving for something, we not only save the interest we would have paid on our loan, but we realize the value of the money we are spending for these large purchases. If nothing else, it will help us appreciate our purchase more knowing how much work went into it. In comparison, if we get it instantly, we may start to resent it because it is costing us our now income.
Another part of our instant gratification mindset, is that we tire of our instant purchases quickly. I’ve seen more and more auto loans that start off over the value of the vehicle by 25% or more. While some of this could be to include taxes, registration, and some other extras, most of the time this additional amount is because they traded in a vehicle that they were already upside down with. Instead of keeping my two year old vehicle until I can pay it off and possibly save for a new one, my now mind takes over and says if I’m already upside down in my current vehicle, being upside down in new one isn’t any different. On the surface, this logic seems to make sense. What is the difference? Well, the reason I am probably upside down with my current loan is I probably bought a vehicle that lost value quickly. This happens most commonly with a new/newer vehicle. When I trade in this vehicle, am I going to buy an older vehicle? Unless I’ve had a change of heart, no. I will buy another new/newer vehicle which will also lose value quickly. Even the first time I do this, it can result in a 150% loan to value ratio. Eventually, it will become difficult to find a financial institution that will take my new loan or refinance my old, even with perfect credit.
A lot has been said recently about paying attention to where our finances go. This shouldn’t mean just paying attention to the fact that we have a loan on a purchase we made. Part of that should be put into paying attention to what kind of purchase our money goes into. Using the above example of a car loan, when looking to purchase a new vehicle, we should put some research into how quickly the vehicle traditionally loses value. This can tell us if we want to purchase a brand new vehicle, or perhaps the same model from 4 years ago, or even a different model all together. We should know how and why our decisions are made. Do we base our decisions on a now desire? Or do we think through our choices before coming to a conclusion?