The Diary of a Budgeter – Day 47

Bobbi Olson Articles, The Diary of a Budgeter

Low interest rates: opportunity or sucker bet?

For the umpteenth time today, I heard someone say, “we’d be stupid not to borrow money at these rates” and it made me cringe. Usually, when I hear this, they’re referring to the interest rates being kept low by the Federal Reserve and the “investment opportunities” that abound from it. But the statement sickens me, because I believe any debt is a risk – one that should never be taken lightly.

To consider taking on debt to make money seems backwards to me, and usually boils down to an “opportunity” which a person wants to take advantage of at that moment, regardless of whether they are financially prepared for it. I say if they aren’t financially prepared, it’s not an opportunity.

Let’s think about what is considered “good debt.” – A college degree is the first thing that comes to mind. These days, most people think it’s necessary to take on debt, if you want a college degree. Not so. Start saving early enough and take advantage of true opportunities that come along before & during college – like scholarships and work programs – and you won’t graduate with a mound of debt. If you plan before you spend, you can spend smart! If you jump at something that looks like an opportunity in the moment, without thinking about the financial consequences, you could pay for that decision for the rest of your life!

Another “opportunity” I’ve been hearing lately is to finance a car, even if you can afford to pay cash. The thinking goes that if you can finance for 2%, it’s worth it so you can put your cash into an investment vehicle that could provide a much higher return than 2%.

The fact that this idea is floating around out there really scares me. In theory, I can see where some may think it’s a good idea, but here’s the other side of the coin: you may be able to afford those payments today, but if you were laid off, could you still afford them?

Pay cash for the car and spend the next 5 years investing the monthly amount you would have paid toward the car. Then, if you do get laid off, you can stop investing and use the money as part of your bridge from the bad times to the good.

Also, what if the investment fails? Now you’ve lost the cash you invested and are still financing a car you could have paid cash for. Either way, you’re overpaying for the car! If you are in a position to pay cash, thank your lucky stars and pay it!

When opportunity arises, take a good look at whether it’s truly an opportunity FOR YOU!

One person’s opportunity is another person’s sucker bet.

Agree? Disagree? Email me!