Ballerific Finance: Analyze The Total, Not The Monthly Payment – blogged by @niksofly

I love to say this over and over again; you can have BALLER status without having a six-figure gig or sports contract. Being a BALLER is more than driving luxury cars and wearing Celine bags. Anyone can literally appear BALLER, but to financially be BALLER is a totally different ballpark. One great way to ensure that your finances are ballerific is to always analyze the total amount something will costs after financing.

How many times have you seen an advertisement for an item with its selling price being one cost and then in a vivid shiny bubble, the company tells you that you can own an item for a low monthly fee. I’ll take it a step further. You scroll the internet looking for alternative loan options because your credit is sub prime. You know that payday loans are the devil, but a company advertises “installment loans”. You can borrow the money you need and pay it back over time in AFFORDABLE monthly payments. Sounds great, right? Wrong.

Many consumers make the mistake of looking at the monthly payment versus the total cost. I understand that sometimes a need may arise and you simply do not have the additional funds to purchase the item or cover the unexpected expense (this is why creating a budget and aggressively saving is important). You may feel like you have to make this purchase or borrow the money; but before you do, analyze what it will cost you once you make the final payment.

Let’s say company XYZ Wireless will allow you to purchase the latest iPhone over time. If you use your upgrade, you will pay about $200 or so, but that would create a deficit in your budget. XYZ Wireless tells you that you can pay an affordable monthly fee of $35 dollars for 24 months. Eagerly, you accept. You have the phone and the payments are affordable. You fail to realize that the $200 phone has cost you $220 more. No you don’t feel the additional cost, but that’s $220 more in your savings that you could have had for an emergency situation.

Referring back to the installment loan… you needed $800 to cover the unexpected car expense. Your credit is less than worthy of a personal loan. Your credit cards are at their limits holding on for dear life. You decide to seek an installment loan. It’s better than the payday loan because the money isn’t immediately due the next time you are paid. You won’t have a hard inquiry on your credit report; it appears as a win-win. Wrong. The first sign that you may be entering into an agreement that may not benefit you is when the company extends credit (or a loan) without verifying your worthiness. The $800 will be paid over the course of 5 months at $245.51 per month. It’s a comfortable payment, but over 5 months, you not only paid the $800 initial balance, you gave the company an additional $427.55. What could you have done with the additional money?

This is why I say it is very important to analyze the total cost versus monthly payments. This is the same way non-reputable car dealerships sucker “desperate” buyers. The salesman ask you what would be a comfortable payment and before you know it, you have a new car at your comfortable payment for the next seven years. The interest rate is ridiculous, but the payment is comfortable.

I suggest that before you purchase or borrow, you calculate the total amount you will be paying. If the purchase isn’t necessary, do not purchase it. If you can manage without borrowing, (i.e. take public transit or catch rides (please give the person picking you up gas money)), do so. If you are in need of the additional funds or the purchase, borrow the funds from a friend. Be sure to write it up in a contract so that you and your friend are protected. I always suggest building a good relationship with a financial institution. It comes in handy at times like this. At no time, do you make long-term decisions (entering contracts) based on short term needs.

Remember, the goal isn’t to look like a BALLER, it is to be one.

-Niko Rose