Never borrow to buy things that lose money

Never borrow to buy things that lose money

During my student days, I was working the register at a local bottle shop when a Random Man started talking money.

He’d overhead some young gents discussing a new car they were going to buy.

All of 18, chasing image, a $25,000 loan wasn’t a big issue. All you have to do is agree to pay off manageable instalments over a number of years, and the dream is yours. Today.

In Random Man’s opinion, borrowing money to buy something that depreciates – loses value – showed financial immaturity. He wanted to make sure that I – being of a similar demographic – didn’t make the same mistake as the image-conscious teens.

So here, with credit to Random Man, is the advice:

“Never borrow to buy things that lose money”

– Random Man in a bottle shop.

The explanation is, when you use credit to buy something that goes down in value, you are losing money on 2 fronts.

Firstly, you instantly and continually lose value as the car depreciates. It is instantly ‘second hand’, so you will never sell it for the purchase price.

Secondly, you are likely to pay interest on the loan you’ve taken.

So I tip my hat to the Random Man for giving me a simple rule of thumb.

Related: How are you using debt?

What do you think – is Random Man onto something?

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