I’m a Self-Made Millionaire: 3 Things I Never Buy With Credit
According to the Federal Reserve Bank of New York, Americans’ credit card balances shot up to over a trillion dollars in the last quarter of 2023. This $50 billion increase in debt for the quarter displays that spending on credit has increased while Americans struggle with soaring inflation and higher interest rates. While there will be times when you may have to rely on credit or financing to get by, there are certain things you should never purchase on credit.
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We spoke with a self-made millionaire who shared purchases he never makes on credit. Brian Preston (CFP®, CPA, PFS) hosts the top business podcast and YouTube Channel The Money Guy Show. Here are things he’ll never buy on credit again.
What Are Things Self-Made Millionaires Never Buy With Credit?
While having money in the bank could allow you to treat yourself, you don’t want to spend money to look rich to give a false impression. Here are three items that you shouldn’t purchase with credit or any kind of payment plan.
1. Luxury Vehicle
“As a financial planner and self-made millionaire who personally purchased a luxury car, I can tell you it’s one I regret,” Preston said. “When it comes to luxury cars, my first piece of advice is that you should be able to pay it off in cash in one year. “
Preston stressed the importance of saving cash for a luxury vehicle so that you can pay it off instead of financing it. The payments can be expensive, and a luxury car can easily come with hefty monthly payments. If you can’t afford the luxury vehicle with cash, you may want to want to focus on saving up until you have the funds so that you don’t get buried with debt.
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2. Nice Watches
“This is an accessory to think twice about,” Preston said.
“While watches will hold a portion of their value because manufacturers are smart about the quantity they release,” Preston doesn’t think you should finance this type of purchase.
He noted that he went through a phase of purchasing nice watches like Rolex, Omega and Tag. He realized that a purchase like this is made to highlight status, and you could compromise your financial situation if you finance an expensive watch you can’t yet afford.
Preston summarized his thoughts on expensive watches:
“In my personal experience, you will wind up wearing your Apple watch or fitness tracker watch and monitoring your steps anyway, so those expensive watches wind up just collecting dust.”
As exciting as it is to purchase a watch guaranteed to garner attention, you don’t want to be stuck making payments on something that collects dust in your drawer.
3. Expensive Vacations
“Don’t waste your money on business class for flights that are less than two hours,” Preston pointed out. “It’s incredible for four-plus hour flights if you can afford it, especially if you’re tall like me. But on short-distance flights, you’re paying a premium for a short amount of time, and the experience is not that different.”
Preston shared that you may feel the urge to put first-class flights or an expensive vacation on your credit card, but you don’t want to overindulge to the point that you have to make credit card payments for the next year on a trip that you couldn’t afford in the first place. This is money that could be allocated to your retirement account.
Issues With Buying on Credit
Here are some of the biggest issues with buying these items on credit and how they could hurt your finances.
There Are Other Hidden Costs
“Even if you can check those boxes and afford the vehicle, there are so many hidden costs you should be aware of before you make this type of purchase,” Preston said.
While you’re making payments on that luxury vehicle, you could be hit with other hidden fees that will make this a much more expensive venture than you anticipated.
What are some of the hidden costs? Here’s what Preston warned about:
“Luxury vehicles come with ‘performance’ tires that need to be replaced often, premium fuel, high insurance, and outrageously expensive ongoing maintenance.”
These hidden costs can add up and put you further into debt on top of the monthly payments that you’re making.
Preston came to the following conclusion on luxury vehicles:
“You’re free to enjoy what you have saved financially and purchase a luxury car, but personally, I didn’t feel as though it was worth the associated costs. Not to mention the oversized rims that tend to get scratched — even when you treat them like pampered royalty.”
You End Up Spending Money Trying To Look Rich
“Luxury goods should never be bought on credit. It’s so much better to be rich than to just look rich,” Preston said.
One of the biggest issues with financing luxury goods is that you’re spending money you don’t have on items that will appear to make you look more successful than you are.
Success Isn’t About Trying To Impress Others
“As you progress on this journey (and become even more successful), you realize that it’s really not about how people perceive your success — it’s more important that you define what success looks like to you and accomplish that,” Preston shared.
Similarly, you don’t want to rack up debt and get stuck with interest payments because you want to look successful. You should strive to set your own standards for what success looks like. This could include paying off your mortgage, saving enough to retire early or living a comfortable lifestyle you’re proud of.
You Have To Deal With Interest Payments
Another big issue with purchasing with credit is that you have to deal with interest payments as interest rates are up due to the Federal Reserve attempting to cool inflation. Warren Buffett is known for stressing the importance of avoiding debt at all costs. If you don’t avoid debt, you’ll have fewer resources for retirement and paying off your mortgage. You don’t want to end up working into your golden years because of all the expensive items you financed when you were younger.
Preston concluded by stressing that if you can’t afford to buy something outright, you may want to think twice about the purchase. While treating yourself to a new car or a lavish vacation may be tempting, you want to think twice about the possible consequences of piling on debt instead of investing your money into your future.
Preston summarized his views on avoiding financing expensive items:
“I have also found that the older, wiser and more successful you get, you find the flex purchases to be less important. Notice there are many billionaires that look practically homeless. Know who you are and what you value; avoid trying to impress folks that likely do not even care.”
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This article originally appeared on GOBankingRates.com: I’m a Self-Made Millionaire: 3 Things I Never Buy With Credit
