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Comment by bradleyjg | Hacker News Reader

I don't think such an absolute position is warranted. It's true that saving up for a big purchase will end up costing you less money than borrowing to pay for it and paying it back. But you will have the item purchased for less time.

Suppose you have enough disposable income to pay for a new $1200 TV over the course of 12 months. In scenario 1, you save $100 each month. The bank pays you 0.5% interest. As of January 1st next year you'll have a new TV and $2.75. In scenario 2, you put $1200 on a credit card with a 10% APR. You pay $100 each month towards the credit card bill. As of January 1st next year you have a TV you've been watching for a year already and owe $69. You've essentially paid $72 for the privilege of getting the TV you wanted a year earlier.

Is that worth it? Well that depends on a lot of things, some of them intangible, but I wouldn't say it can't possibly make any sense. The sort of Puritan attitude towards consumption and debt may not be the worst attitude to have, at least for oneself. But when combined with evangelism it is pretty annoying.

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The old, and conveniently oft forgotten, advice applies: Never borrow against a depreciating asset. If you need to clear down you may have a problem. A job loss, recession, illness could all mean you want to clear the debt. Selling the now second hand TV is not going to clear the debt. Add in a few more debts justified thus and you have a bankruptcy or house loss on your hands. Perhaps you can guarantee you will not get ill or lose your job during the loan?

So many of the people bitten hard by the 2008 recession applied logic such as yours, and often drew down on their mortgages (cheaper than credit card) to buy TVs, cars and holidays.

Borrowing against a growing asset is different.

I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either!

>I'm a "reformed" credit card user. I haven't borrowed for anything apart from the house in around 15 years. It's not a problem, and the kids don't miss out on having too much stuff either!

I've never used a credit card, because people like you got to me before I was old enough to apply for one and warded me off, so thanks :)

However, what's your experience with taking out that home loan? I'm worried that I might one day ask the bank for a serious loan (with a suitable amount of pre-savings) and be informed I cannot be lent to because I have no credit history at all. I know I can get a credit card and always pay it off at the end of the month to get a credit history, but by golly does playing that game sit ill with me.

You've basically swung too far to the other side of the spectrum, and you will be penalized for not having a credit history if you ever seek a large loan.

If you consider your credit card to be a no-fee (or low-fee) payment mechanism that aggregates your monthly expenditures into a single bill, you can have savings theoretically (though in reality, probably not usefully) appreciating over the course of the month in a bank account, and then pay the bill for your expenditures at the end.

This simple money management technique reduces fees paid for ATM access, allows your assets to maximally appreciate, and builds up a very solid credit history. Credit Cards and Lines of Credit aren't evil; they're useful, but they're not hard to use in a manner that will bite you.

enough credit card programs out there provide cash back (1-5%) on purchases, for no annual fee. that ought to make using it for a monthly purchasing conduit ideal (your real cash can be collecting interest between monthly payoffs, and your transactions get a nice 1-5% haircut usually at the end of the year).

If you can play the game to your rules, not theirs, having a single credit card can be ok:

* Pay the entire balance every month, ideally by direct debit (they don't like doing this) * Ignore offers to increase credit limit * Actively reverse automatic credit increases. My card company tried ridiculously hard to talk me out of reducing my credit limit.

This type of credit card customer is by far the minority (10% iirc), and least welcome to the card companies. Their ideal customer has multiple cards and pays minimum balance every month.

Student loans also count towards credit worthiness.

For a home loan, having little or no credit, isn't necessarily a deal breaker, but does limit lender choice. At least in the UK.

I dislike the game partially because the more indirection between spending and the actual money, the easier it is to overspend or lose track. This is the whole point, of course! So I just stick to the debit card for net, and actual cash from ATM when out shopping.

Accepting higher credit limits actually improves your credit score over time, assuming you do not actually use the credit. In my opinion, you should accept the credit limit increases when offered.

But what's the point? If, as the commenter asks, you're looking to cover yourself in the event of wanting a mortgage, perhaps car loan too, you only need good credit.

I do know the UK doesn't use credit score as the US does, so it may operate on a different premise where gaming the score matters.

Both the ratio of your amount of available credit vs. used credit and the total amount of credit that you have available feed into your FICO score. From the lender's perspective, someone with a lot of unused credit is a better candidate than someone without. One of my cards recently announced a change that caused me to start looking around and its replacement had a substantially higher limit which unexpectedly gave a significant boost to my score.

> This type of credit card customer is by far the minority (10% iirc), and least welcome to the card companies. Their ideal customer has multiple cards and pays minimum balance every month.

A card user who pays their balance every month is still valuable to the card company though, as it draws fees on every transaction. Someone who uses their 1.5% cashback card to pay for EVERYTHING and puts a couple thousand a month on the card brings in some cash too, and the day they lose their job they might start racking up debt.

Why ignore offers to increase credit limit? I keep accepting higher credit limits because I was under the impression there is no down side. (I only ever use a small fraction of my limit and never carry a balance.)

Because I didn't want the temptation to use it. Especially if I found myself in a challenging position. I'd far rather have it brought down to a limit I would choose. They increase it precisely to tempt you to use it, after all.

At one point I had as much available credit across two cards as balance on the mortgage, whereupon I decided it was silly and I'd like them to reduce please.

OK thanks. I was worried I was negatively impacting my credit rating somehow. My few minutes of research indicate that having a higher limit may actually be beneficial to someone like me who never utilizes my available credit.

The ratio of available to utilized credit definitely does impact your credit score positively. That's why for a while, I would periodically ask for limit increases 1-2 times per year on all of my cards even though I will never come close to the limits. You don't want to do this too often though; I think asking for an increase may incur a credit pull. Too many of those can hurt your score.

>but by golly does playing that game sit ill with me.

Why? They are giving you free money for your trouble (1.5-2% back, a proportion of the transaction fee they've effectively baked into the price of all consumer products) and offloading the risk of having your bank account drained through a debit card or getting mugged for your cash.

Capital One has a 1.5% cash back on all purchases card. I put everything I can on it, and pay off in full very month on time. Does the prospect of paying only 98.5% of almost every price before your eyes not interest you? If not, then I don't know much what will. Your financial prudence will be rewarded with these residuals if you help the banks get their merchant fees. Over a lifetime, it can add up, and the fraud protection is great peace of mind.

Citi has a 2% card. If you spend a lot in a particular category such as gas or groceries it isn't hard to find a card that will beat this.

yep, and Citi has a 2% cash back (1% at purchase, 1% when paid). Discover is 5% back on a different category each quarter (and Q4 is Amazon), and Amazon's store card gives you 5% statement credit on everything you buy.

That's got to be some sort of opportunity for arbitrage.

Check out https://www.reddit.com/r/churning and specifically look out for "manufactured spending".

Hmm. I'll also add that owning a house is not as it once was.

Time was you got tax relief on mortgage interest, and crucially there was enough inflation in the system that a mortgage was an insanely easy choice. A little inflation would deflate your mortgage payment down to truly trivial levels over the life of the mortgage. Because of the removal of inflation your mortgage payment is no longer an ever decreasing proportion of your income, ignoring pay rises, so the only remaining factor is what you believe will happen to rents.

Paying phone and utility bills counts towards you score as well. We've bought two cars and a house with near zero (or zero for many years) credit card useage. No problems at all.

Our credit score were upper good before and near perfect now. We've not used a credit card in eight years.

You can get a free copy of your credit report once a year from each major company - you could go ahead and order them just to see where you are at.

I've never seen a phone company or a utility company report payment history on my credit report.

I've never used a credit card

There are many reasons to use one. Others here have already given you some. But I want to add one more good reason: protection. So here you go:

- I try to pay for all restaurant meals with a credit card. Then, e.g. if I get sick eating at e.g. Chipotle, there's at least a record that I purchased something from them. If I lose the receipt I might not remember whether it was a taco or a burrito, but I'm still way ahead of someone who paid cash and doesn't have his receipt!

- If I have a dispute of any sort with the supplier, it really helps to at least have the threat of a credit card chargeback available. Too many disputes or chargebacks are bad news for vendors, and most will want to avoid those.

- Some cards will extend the warranty on a purchase, but I've never availed myself of that feature so I don't know how easy it is to use.

All US CCs (Visa, MC, AMEX, Discover) extend warranties. I used this feature sith American Express. Its as easy to use as can be. They just refunded my original purchase amount.

I've also used price protection with Discover. Also easy to use but they take a couple weeks to process the claim and mail the check (a third party processes it)

Price protection is pretty unique - not too many cards have it. If you find a lower price later on an identical item they refund the difference. I used it to get black friday sales before black friday.

>there's at least a record that I purchased something from them. I'm still way ahead of someone who paid cash and doesn't have his receipt!

Debit card?

For what it's worth, I recently bought a house. Having a rotating line of credit on a credit card that was paid off did not help with some loan history requirements.

The lender wanted to see loan with fixed payments in the past 3 years (which my wife had, a car loan). Sure, maybe we could have argued, etc. but a credit card paid off each month wasn't a magic bullet for building credit history. I'd say get a nominal loan (not simply a credit card) to build up credit.

This is terrible advice. Don't get a loan just to "build up credit."

Get and use a credit card (or two), but pay it off every month. Every year or so, ask them to raise the credit limit. You'll be in fine shape when it comes to getting a mortgage.

"Not paying interest on any card" is desirable. "Not having any card" works against you in your situation.

I have a credit card that needs to be paid off in full every month. Zero-interest 1-month loans are very handy to iron out any behavior or income fluctuations.

You're a terrible person - why call me out for being wrong, then when I show you that you are wrong, just vanish? That's un-australian.

>A job loss, recession, illness

These are all great reasons to have an emergency fund which covers the payments on all your debts (and your other expenses) for a few months. Then if you're in a situation where you need to use it, you can make a decision about whether to try to offload the debt or just pay it out of savings.

I'd take $20,000 in savings + $20,000 in debts any day over $0 in savings + debt free. Obviously you need to factor in interest rates, but with cash and debt you have options. With no cash and no debt you are screwed should anything go wrong. (Although the best is still cash + no debt).

>>These are all great reasons to have an emergency fund which covers the payments on all your debts (and your other expenses) for a few months.

That's not what an emergency fund is for. An emergency fund is for essential expenses, such as rent (or mortgage), food, prescription medicines not covered by insurance, and so on. If you are in the "I'll just use my emergency fund to pay off my debts in case disaster strikes" you've already lost the game.

The internet personal finance community usually considers debt payments to be a fixed expense that you need to plan for in your emergency fund in addition to the other things you mentioned. I'm not sure where you're getting your "emergency funds can't cover debt payments" assertion from.

20k amount financed on a car @ 2% for 48 months: $434/mo. Save that (in addition to your other savings) for 6 months, then finance the car. Then you can absorb a 6 month unemployment stint out of savings, during which you can downgrade at any point if necessary. Or you can wait an extra 42 months to save $827 in interest if that's worth it to you, but either way the risk is managed.

> Suppose you have enough disposable income to pay for a new $1200 TV over the course of 12 months. In scenario 1, you save $100 each month. The bank pays you 0.5% interest. As of January 1st next year you'll have a new TV and $2.75. In scenario 2, you put $1200 on a credit card with a 10% APR. You pay $100 each month towards the credit card bill. As of January 1st next year you have a TV you've been watching for a year already and owe $69. You've essentially paid $72 for the privilege of getting the TV you wanted a year earlier.

I think this is a good point, but the sort of people who would need a year to save $1200 do not have the sort of credit to get a 10% APR credit card, APR's closer to 20% or higher are more likely. Run the math again at 18% APR ($133 in interest over the 14-month payoff period) or even 24% ($185 in interest over the 14-month payoff period), and you quickly see just how much premium it costs to get that TV a year earlier.

I'm ignoring the negligible savings rate interest in your example and, probably foolishly, assuming this hypothetical person only has this single CC debt.

> Run the math again at 18% APR ($133 in interest over the 14-month payoff period) or even 24% ($185 in interest over the 14-month payoff period), and you quickly see just how much premium it costs to get that TV a year earlier.

I feel like the issue isn't just the TV. It's that it's the TV, plus the next thing, plus the next thing. Or in other words, tiers of debt usage from best to worse: (1) completely avoid paying interest charges, (2) pay interest charges on large purchases with full knowledge and planning and in a responsible manner, (3) pay interest charges without knowledge of what you're paying or what to do about it.

Personally, I think it's a failure of financial literacy of the US educational system on one of the most important aspects of kid's lives. I have met incredibly educated people that are still ignorant about how credit cards/interest charges work and only internalized "Never use credit cards!" advice. I've also met less educated people who never think past "This is what it says the minimum payment is, so I pay that."

Neither position is good. And they. aren't. that. complicated.

The disclosure sheet gives you annual fee (if any), APR when interest is charged, and any penalties that may result in an APR adjustment. After that it's simply "If you have a >$0 statement balance from the previous month after your due date and payment, then you begin accruing interest on the daily total of your balance." Not rocket science.

To be fair, if you really aren't capable of understanding how credit cards work, "never use credit cards" is probably the best internalized advice to have.

I still don't get it. My credit card is a device by which my bank gives me some incentive (aeroplan miles, cash back) to put my transactions on a card and then immediately pay them off, instead of performing those directly against my bank account.

When you buy something with your card, the bank collects a fee from the seller which is more than the value of those incentives.

Unless the seller offers me a cash discount this is already baked into the price. The choices are get something back from using the card or don't.

Sure. I'm just explaining why the bank rewards you for this seemingly pointless procedure, not passing judgment on any of it.

> I have met incredibly educated people that are still ignorant about how credit cards/interest charges work and only internalized "Never use credit cards!" advice.

I feel that on a rational level, I understand the credit card companies' game, but more than that, I fear them and their power and intelligence.

Sure, I'd like to think I'm smart enough not to be tricked by them, but it's safer to avoid the deal with the devil altogether.

Fair point. We could probably term that the "unnoticed terms" risk and assign a non-zero value to it.

I'd only say two things in defense of credit card use (both valid in the US - not sure about other countries):

- Credit card companies are required to compile all of the information I mentioned into a fairly standardized form per the Truth in Lending Act (see: https://www.federalregister.gov/articles/2010/02/22/2010-624... )

- Credit card companies are competing for your business. At least with decent credit scores, it doesn't make sense for them to have unreasonable terms or try to screw you over

You can play the "game" in a fairly safe manner -

Get a no-annual fee credit card. Put it in your sock drawer. Take it out every 6-12 months and buy lunch with it. When you get home put card back in sock drawer and RIGHT AWAY pay off the amount you had for lunch on your bill. (You almost always can make payments on a zero balance. Citi was kinda weird about it but I make payments over my balance all the time and only Citi gave me a "can't pay over 20% of your balance").

Just having the card and not using it "counts" in your score. The lunch is just to keep the bank from marking your card as inactive and cancelling it.

If you feel you will be tempted to use it to increase your overall spending - then by all means avoid it.

Unless you are at a very small bank/credit union (and sometimes not even then) your bank probably is a credit card company.

> I think this is a good point, but the sort of people who would need a year to save $1200 do not have the sort of credit to get a 10% APR credit card, APR's closer to 20% or higher are more likely.

My credit score according to Credit Karma is 811, which I think everyone could agree is very good. I just spot checked two of my credit cards, and they're both at about 16% interest. Now, maybe I could get a lower rate if I asked, but that's what they gave me by default. It doesn't matter to me since I never carry a balance (in fact, I didn't even know what the interest rate was; I had to go look). But 10% does seem pretty optimistic.

That said, I agree with the overall point. It should be acceptable to use credit in the situation described, as long as you're completely aware of the actual cost and are making a rational decision. Unfortunately, too few people do the math, and even for very educated and intelligent people, purchasing decisions can be irrational.

There are multiple types of credit cards. Generally you can trade higher rates for higher credit limits, a longer float before interest starts, a low intro rate 18mo at 0% is common, cash back, or other rewards.

If you really pay off every months you want a 45 day carry before interest and cash back. But, they often have much higher rates.

PS: I have two one at 9% another at 12%, but the 12 has a much higher limit.

Actually, a lot of places constantly run "Zero Interest If Paid Off In 12 Months" deals all the time. Lowes, Furniture stores, and even some Credit cards.

We've paid off Couches, A refrigerator, a new Sewer Drain, and several other things (a nice Kitchen Table most recently) this way. It's not as good as saving for it, and getting a few dollars of interest, but that's a marginal gain anyway.

The Amazon Prime Store Card is an example. You can choose per transaction either 5% cash back or 6/12 (sometimes 24) months interest-free financing, depending on the size of the purchase. (You can only use the card at Amazon, though, and there's the Prime membership fee.) I've bought several plumbing fixtures and a laptop without paying any interest this way.

This is effectively how the low fed-funds rate trickles down to the consumer - there are 0% financing opportunities everywhere.

Ultimately, these deals are subsidized by people who get charged with massive deferred interest payments because they don't plan properly, and that sucks for them, but as you say, it's a great way to start experiencing the benefits of a purchase instantly.

Even better is to use the financing opportunity on something that makes money. I've furnished apartments using 0% financing, and I'll get anywhere from 50%-100% increase on rental income for a furnished apartment - while paying no interest on the loan! It's like putting extra money in your pocket every month for free.

>This is effectively how the low fed-funds rate trickles down to the consumer - there are 0% financing opportunities everywhere.

Indeed, and it's important to point this out to those who insist "Average Joe" doesn't benefit.

Three of the largest investments people will make in their lives are 1) their home, 2) their education and 3) their vehicle. All 3 are generally financed, and financing rates are at historic lows.

The prices of 1) and 2) are at historic highs though. Even if the interest rate is low you still have a lot of debt to pay off.

Keep in mind that 0% interest isn't the same as free money. Usually a 0% interest deal comes with "finance charges".

I've never seen that. What I have seen is that if you don't pay the card off completely in 12 months, they'll assess interest going back to the inception of the account, so if you make a 0% deal you've got to be sure you can pay it off in the time allotted.

Except you can get discounts if you pay in cash. I'd never pay more than 60% of what they're asking for a couch.

That's a good point. I'm terrible at this kind of negotiation though, do you usually come in with a particular price or do they have a set amount if it's cash? I think I'd like to get better at negotiating, I usually end up paying full price for a car because of my lack of such skill.

Yeah as the other person said, you definitely don't need to be a shark, ask how much it would be if you were paying cash. Also you can always walk away from a purchase and say you'll think about it. I got a call the next day where they took $500 off of bedroom furniture when I actually was just thinking about my other options. Cars especially though you should be asking for discounts, I worked at a car dealership (in detailing, i couldn't be a salesman) and they are horrible. Also they work on purely commission so it's in their best interest to give you a deal since if they don't close they don't make anything. Walk away from a car dealership as many times as you have to... really just take your time.

Try just asking for a discount on purchases of single items above ~100€/$. It can be as simple as saying 'Can you give me a discount?'. Sometimes you get free stuff added, sometimes a few percent off. And this is just the simplest level where you don't even really negotiate, you just ask one question nicely, no conflict. Eg. hiking boots, bikes, computers are things where that worked for me.

"Is that negotiable" is a less "direct" way of asking for a discount.

I think the whole analogy is moot since anyone buying a TV would, at least, try for store financing.

A quick look up says that Best Buy offers 11.9% APR for select purchases, or 25% for others.

I am not sure I agree that the kind of people who would need a year to save $1200 do not have the sort of credit to get a 10% APR credit card.

There are plenty of high income earners who are just as irresponsible with spending as some low income earners. I always had a good credit score during the years it would have taken me a year to save $1200.

In scenario 1, when you realize that paying so much money for a TV is nonsense, you can spend that money on something else, and/or stop going to work, or reduce work hours.

In scenario 2, you're stuck going to work for the entire 12 months to pay off a TV that will be obsolete by the time you finish paying for it.

Scenario 2 robs you of your choices, because you're making a promise of future labor. Scenario 1 leaves all your choices on the table.

Since when does a television become "obsolete" after a year? Or even after 5 years? Just because it doesn't have built-in support for Netflix or whatever the latest thing is? This is the sort of idea that lures people into overspending in the first place.

For the record, mine is close to 18 years old and continues to work just fine for watching broadcast television. Yes it's fatter than those newfangled flat things, but it doesn't watch me watching it, it doesn't record my conversations, and it doesn't report my viewing habits back to the mother ship. One day it will fail and I'll be forced to get a new one.

> Yes it's fatter than those newfangled flat things, but it doesn't watch me watching it, it doesn't record my conversations, and it doesn't report my viewing habits back to the mother ship. One day it will fail and I'll be forced to get a new one.

It's actually getting pretty difficult to buy a new "dumb" TV these days. The last TV I bought was in November 2014, it's a normal 50" Plasma screen TV with zero connected features. Some of my relatives liked the TV and asked me to find them one like it and I can't. Apparently TV makers have decided that making good TVs isn't important and packing them with smart features I don't want or need is the way to go.

Recently purchased an older model LG oled, and it has all sorts of "smart" features. Simply not connecting it to the internet and not agreeing to the terms of service has turned it back into a dumb tv.

> For the record, mine is close to 18 years old and continues to work just fine for watching broadcast television.

That's the key point. Your TV is fine because it's old. New ones are built with planned and unplanned obsolescence (unplanned is when your "smart" TV loses half of its functionality because some service goes off-line or even changes their URL or something).

There still isn't a TV on the market (that I know of) that is obsolete after a year, not even five years. As long as the inputs (hdmi, dvi, RCA) work then the TV is not obsolete. It may not have the newest features (4k, "smart" connectivity) but it is every bit as usable (and many of the smart features can be added with a ROKU, Apple TV or the like).

Video and Films are my business and my TV is a nearly 5 year old LG plasma that still performs great. And I only bought it because my ex kept the Panasonic plasma after the break-up or I'd probably be using an 8 year old TV.

Are there any reports of smart TVs not working completely (inputs stop working) because the "smart" connected features stop working?

While I agree that TVs don't go obsolete after one year, obsolete doesn't mean "broken" or "no longer works", it just means that the item is outdated or outmoded and generally no longer used. Ball mice, for example, are obsolete but would still work if plugged into a computer.

Losing one function or even several doesn't automatically make something obsolete (outdated, outmoded and generally no longer used) if it's still functional for it's main purpose. Ball mice are obsolete mainly because no one is making mice that aren't optical/laser (AFAIK). A TV losing a smart function doesn't make that TV obsolete unless the person using the TV was relying heavily on the smart functions. And even then I wouldn't necessarily say that the TV was obsolete mainly because the smart functions on TV are used by a small percentage of consumers, typically less than 15%.

In scenario 2, I've had the choice of actually using the TV.

Now suppose you lose your job in Month 10. The TV-less person will continue not having a TV, and use those funds for emergency day-to-day living expenses as he (or she) gets his life back in order. You can even dip into your credit card credit line for an emergency.

But the person who bought the TV on interest is in debt, has less credit to live off of, and only a TV to show for it.

-----------

In either case, saving up a pile of 6-months of expenses cash-on-hand is a good strategy. If you have 6-months of expenses saved up, you simply buy the TV with that money, and then in a year you put money back into your cash account.

Look, now you have the benefits of all strategies! Saving up money for emergencies, or even large expenses (LONG before you even think about those expenses) is the way to go.

There’s a ton of comments on this article that I think are much more nutso. But this is the comment I’m going to reply to, cause people who keep emergency funds are probably open changing their mind via reason.

Touching your 6 months emergency expenses fund is completely against the point. The reason you have this cash is for out of the blue, hit by bus kind of events. You need it when you least expect it

If you take your TV out of it you no longer have it - and this fund becomes nothing more than a general savings account. The kind of thing that drops low right after you buy a TV, or a car, which from my personal experience is exactly when bad things happen. And often bad things require cash on the barrelhead, not just credit cards.

So don’t do this. Either save in a slush fund for your TVº, or put it on a credit card, but don’t take it out of your emergency fund and still call it an emergency fund - 'cause it’s not going to be there for you in an emergency.

º or my personal favorite: a throw away, but named, savings account. (Like CapOne360, née Ing Direct, offers.)

Well, its the reality of the situation.

A typial 6-month Emergency fund is somewhere on the order of $15k, depending on where you live. This is more money than the typical American 40 year old has saved up their entire life (including retirement accounts)

http://www.fool.com/investing/general/2015/05/17/americans-a...

If you manage to have $15k, and you are making a big purchase, do use it before you start using a credit card. Now of course, if you have $15k "Emergency use only" PLUS $5k "discretionary", then yeah, spend the money from your discretionary account first.

People able to save 15k of cash usually have decent credit ratings and can get 0% financing for most things.

> This is more money than the typical American 40 year old has saved up their entire life (including retirement accounts)

Seriously? I feel like an old man. I had that much money saved in less than a year from starting my first part time coding job.

In fact the whole not saving money thing seems a bit strange to me. My monthly cost have remained relatively stable for almost a decade while my salary keeps going up.

I wouldn't use that emergency fund money for something like a TV, because it's not really a necessity. Dipping into the emergency fund for indulgences leads to a depleted emergency fund.

Now if your heater breaks and requires replacement, that might be a reason to tap into savings.

I think that's a valid point. TV is quite a luxury item, I spent more than half of last year building up my emergency fund without a TV or couch (still missing couch: I'll get that soon).

But I recognize that I personally like to live on low expenses, lower than other people. For the spenders out there, even just saving up enough for an emergency fund is a big deal.

The important thing is that piles of money are a tool, as is credit (including credit cards). Use the tools as you see fit, but there are definitely "best practices". If you have a large pile of money (ex: Emergency Fund), it makes more sense to buy using that money rather than to dip into credit.

After all, you could always use your credit card in an emergency. Spending available cash first will be cheaper in the long run (as long as your spending habits remain in check)

> You've essentially paid $72 for the privilege of getting the TV you wanted a year earlier.

And that's almost an entire month of savings.

Now, correct your rates with what's on the other replies, and we are suddenly talking about 2 or 3 months of savings. Just for getting that TV an year earlier.

Yes, that may be worth it. But almost always isn't.

> Yes, that may be worth it. But almost always isn't.

I don't disagree with you, but until you provide some evidence this is just the opinion of some random stranger on the internet, and should be taken with a pound of salt.

> Suppose you have enough disposable income to pay for a new $1200 TV over the course of 12 months.

If you don't have $1200 for a TV you shouldn't be buying it. It's not as if you can't buy a perfectly reasonable TV for much less is it?

You're missing the forest for the trees.

Replace the word TV with 'first household car'.

Curious what your point is? It's pretty common to pay cash for a used clunker as your first car because you don't have money to buy a new one, and then use it to get to work so you can save up more money to buy a new one.

Or at least, it's pretty common among the folks I hang with. The car-loan phenomena is baffling to me; why would you pay interest on a depreciating asset?

Why would you waste your liquidity on an asset so easy to secure a loan for as a car?

A five year new car loan from a credit union -- no shopping around -- has a cost of something like $58 / $1000 borrowed. So even if you have $20k cash on hand to buy a new car, for a thousand bucks you can maintain an extra $20k of liquidity for expenses that are more annoying or more expensive to finance, like auto repairs.

Because you want to buy a house? If you are borrowing 8k for a simple car @2%, 5 years, you are repaying ~140/month. On a 20 year loan @2%, that same monthly payment would net you 30k.

My native country has a central database of every single loan outstanding. Lenders have to consult that before granting a loan and stay within certain limits. So at least here, an outstanding car loan might disqualify you from a home loan because of a lack of solvability...

If in those 5 years you decide to buy a house can't you just pay the rest of the car debt with the liquidity you have saved up meanwhile?

> Curious what your point is?

I took his point as: Some people buy an expensive car they can ill afford when they could buy a cheaper one that will do the same job.

Like my TV example, but with a car.

I think it's an American thing. In NZ it's pretty rare to buy a new car, far more common to get a 10-15 year old one for $5-10K. Paying cash is normal

Well, someone has to be buying the new cars, or else there wouldn't be any used cars.

A lot of new cars are sold to fleets and these eventually come on to the used market.

(UK figures)

https://www.gov.uk/government/uploads/system/uploads/attachm...

In 2014, 54% of all car first registrations were made by companies.

Which is lower than I would have guessed, but still significant.

I think NZ imports a lot of cars from overseas. The used-car market is great!

I don't know if it's still the case, but New Zealand used to import a lot of Japanese second hand cars. Cheap, reliable, fuel-efficient and left hand drive.

Less common in Australia because they have (had?) a domestic market to protect -- import tariffs made it less attractive.

No.

Tv don't enable you to get a better job/keep your current. If you want the argument to mean anything then you have to trade like for like. A nice couch will last years and it is still a frivolous consumer spending object. Is it worth it to pay ~80 usd to have the couch a year earlier?

Here's what I just read:

> > > > Here's my argument.

> > > That argument's too weak.

> > Okay, here's a stronger version.

> No, you have to stick with the weak version.

Personally, I want to hear the strongest version of the arguments when I'm making a decision.

You're forgetting a very important topic in finance: positive cash flow. While saving that $100/mo I have an additional $100 in my cash flow that can be diverted in the event of an emergency. Instead I have a $107.20 credit card bill. So how will I pay for that flat tire? You guessed it, I'll put it on the card. If you're the type of person who has a sufficiently large emergency fund and savings, you're probably also the type of person who doesn't need to spread the cost of a TV out over a year.

In practical reality though, if you can't afford to pay cash for it, you can't afford it. People ignore a lot of the hidden/maintenance costs in their lives.

This video on economic theory basically says that it's credit that causes booms and busts, and it's especially bad when credit is not used for investments because it inevitably creates a situation in the future where millions of people at once will have less money to spend, thus creating a bust:

https://www.youtube.com/watch?v=PHe0bXAIuk0

>and it's especially bad when credit is not used for investments

It doesn't even have to be "not investments", it can be appropriately risky investments that just don't pan out (perhaps even systemically due to a "black swan").

There's inherent variation, ebbs and flow, in the economy that we won't ever be able to smooth. Booms and busts will occur because those on the credit margins always represent "going too far".

It's obvious that there will always be booms and busts; the important question is why they are synchronized, instead of localized, like the dotcom boom and bust mostly was.

Oh, well, if an Youtube video says so, it must be true.

Does it show any evidence for that theory?

The video is by Ray Dalio, founder of Bridgewater, and it states that it's just his personal mental framework to understanding the economy; not claiming gospel or anything. Either way, he's kind of a big deal.

Outside of the big purchases, home and transportation, it is safe to say if you cannot save for it in a reasonable time you really cannot afford it.

The only time I buy anything on credit is when it is zero percent on the terms and even then if I could buy it outright or save for it quickly.

It just is too easy to get in the trap of credit and reasoning it out is the first indication you have a problem. If its important save for it, if you cannot save for it get credit counseling

I assume that you had a TV before you upgraded, too? And the one you bought and used for a year is now one year closer to getting replaced. You lost more money then the 72$ depending on how often you replace your TV. In the end you can afford to replace more things more often when you don't have to pay interest on loans.

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