The mental physchee that gets you into debt in first place?

Mitzj7374

NaughtiusMaximus said:

Mitzj7374 said:

I had a friend like this, we went to Audi dealership as she wanted a friend to wait with her, whilst the car was being serviced. 

She is very wealthy, she currently drives an Audi A4 avant. We looked at one amazing car (Audi RS5 Saloon) she was very tempted to buy it then comes out and says she would much rather invest that money into another property. She owns a lovely Rolex but it’s as if she gets excited about a car then the sensible in her kicks in and thinks of deprecation and says stuff like I would enjoy it for few days then novelty would wear off and it becomes just another car. Even though she can afford to buy the car outright 25x etc.  She nearly lost her business in the early days so I think this is why she’s like this. She did have really expensive cars at start on finance it’s like she went through a phase and now she is very sensible. 

 I have another friend who is in 30K of debt and rents and wouldn’t think twice of paying on finance for a ranger rover sport. He’s attitude is “life is for living” not thinking of the consequences. 

Rather counter intuitively, even if you do have the cash to buy a brand new car outright, it's usually cheaper to take out a dealer supplied finance package and then settle immediately.

The reason is dealers are paid a hefty commission for selling finance and depending on the model will offer significant discounts for cars bought on finance in the form of a deposit contribution. If you settle the finance within 14 days you won't pay a penny of interest and will keep the deposit contribution.

She bought the car brand new (on finance) the dealer gave her massive incentives then 4 days later she paid off the finance in full and kept the perks.

My previous post is to show you someone who has allot of money (within top 1% of earners in U.K.) 

then someone who earns 18,000 and the mindsets that really differ.

Mitzj7374

She has had the car since 2017. I forgot to add. 

Retireinten

I would say my childhood played a massive part in my relationship with money... but I can see why someone experiencing the same childhood as me would maybe go the other way with their spending too! 

I had a very happy childhood... but we didn't have much money. My parents were teen parents and we lived with my grandparents when I first arrived. They spent most of my childhood struggling to make ends meet and then when they did start to feel better off financially they threw their money at renovation projects and it's paid off for them, they have a healthy business and a lovely home now!

I grew up determined not to struggle like they did and it taught me a hugely valuable lesson.  But others may have grown up and blown through their first credit card limit buyiny the things they didn't have as a kid!

Nubeynoobs

Anyone else think it may also be a genetic trait in some people ( or at least a learned behaviour?)

my wife and I are both terrible at getting into debt, and interestingly both our Parents are exactly the same...

hugheskevi

I often think that relationship with money bears a close similarity to relationship with food, and the associated impulses people feel. With the debt and obesity that affects so many in the population, the majority of people fail to have a good relationship with either or both.

Personally I have always had a good relationship with money, probably as my background is an analyst in pensions which gives an excellent understanding of financial priorities across entire lifetimes, and it is natural to weigh different priorities and make appropriate decisions. I consider my relationship with food as being not as good as it should be. Whilst I maintain a healthy diet and weigh in-between ideal running weight and the weight NHS considers ideal, it is something I need to constantly monitor, restrict and adjust, not something that comes naturally. Perhaps that is because I never had much background in nutrition and physical fitness until later in life and had poor food habits as a child.

I think that failure to appreciate the full spectrum of opportunity available (or to consider them unobtainable) in the medium to long-term combined with lack of understanding of investment, financial and tax-efficient vehicles means most people make very sub-optimal decisions. As part of managing my medium to long-term strategy, I like to keep annual accounts showing distribution of resources. I do think there is a real lack of financial understanding and monitoring among the population in general, and surprisingly few financial tools readily available to facilitate this. Most tools are extremely simplistic, and just aimed at day-to-day budgeting. I've put below one of the charts I find most helpful to record how my financial strategy is evolving over time. This is nothing complicated, but is very helpful to review where I have placed emphasis in recent years and consider whether I am making good decisions and if (and when) a change to approach is necessary.

I agree that financial education could be so much better at a young age. Most of the younger starters where I work take much greater interest in money following chit-chats where we discuss how companies maximise profits from consumers by certain techniques and products, and how these can be used to your individual advantage. That then leads to much more interest in longer-term financial decisions. One thing I have noticed is that many people prefer to try to copy what I am doing than form their own strategy as they perceive me to know what I am doing. I think that demonstrates the strong 'norming' present in society and the desire to fit in with what is perceived as either normal or well-informed decisions. In fairness, it can be a bit daunting to tackle if you have little knowledge - it is much better to learn the easier things and then progress, but most don't get a sound understanding of some of the more basic concepts and so never progress.

QueenJess

It has become "normal" and socially accepted to get everything on finance. In that respect the business advertising world has been very successful.

My parents were always completely debt adverse and I have to admit it had never occurred to me to buy anything on finance or put anything on a credit card I couldn't afford to immediately pay off.

I'm not in debt, have an emergency fund and am paying off my mortgage (debt makes me uncomfortable). Before anyone says anything I am paying enough into pension etc too.

I work with a lot of people in business finance on good salaries, but I find myself never talking about personal finance as if I explain I have savings and have paid off half my mortgage, I get strange looks as though I am a complete weirdo! They can't understand how I've managed to save and I can't understand how they are saving nothing given they are on higher than average salaries.  Even when I started working I saved. Yes it was a tiny amount, but I still saved it every month and eventually used it as a deposit for my house.

I do think we've all been brainwashed a bit along the way by advertising and what is acceptable. When I bought a car a few years ago, the garage was visibly shocked that I didn't want finance and was paying upfront. I asked for a discount as I was paying cash and they said they make more money from finance. I know that was to some extent part of their negotiating tactic and I did negotiate a discount in the end, but I do know it's true that they make much more money from financing.

QueenJess

I should also say that I am not convinced that banks etc lend responsibly at all. When I got my mortgage, the person I spoke to at the bank stated how much I could borrow. To their bemusement I told them that amount was too high and I would only be borrowing £X. The amount they said I could borrow was stupid and yes I could physically "afford it", but there was absolutely no leeway and I would be living a miserable life right now with little for non essentials. 

I was a bit surprised (my first time getting any kind of loan) as this was after they had changed their rules from the last recession and were meant to be checking affordability much more heavily.

spoovy

Class is a factor, in my opinion; specifically a working class inferiority complex.  I'm from a working class background where we never had anything (think hand-me-down clothes from my mum's friends kids, who I would then see at school :-0), and I always felt it acutely -- the sting of shame for being poor.  I used to lust after luxury watches & expensive clothes particularly when I was a teenager, and as soon as I could get credit cards I started buying them. It didn't end well.

I remember being amazed at my middle class friends when I was in my 20s -- why weren't they wearing Rolexes and driving BMWs when they could easily get them on the tick, like I was?  I realise now that they just didn't really want them all that much, not like I did.  They'd always had "nice things" and were comfortable with their place in the hierarchy. They didn't feel the need to pretend to be wealthier than they were, and wearing Rolexes and driving BMWs was trashy to them anyway.  They had sights set on building wealth, on holiday homes and early retirement.

Range Rovers are emblematic of this I think -- a vehicle designed (in the popular imagination at least) for driving around your country estate, now generally seen parked outside semi-detached houses in working class areas (and 9 out of 10 of them on the tick).  I'm no psychologist but it seems pretty clear to me what this is all about.

Mitzj7374

spoovy said:

Class is a factor, in my opinion; specifically a working class inferiority complex.  I'm from a working class background where we never had anything (think hand-me-down clothes from my mum's friends kids, who I would then see at school :-0), and I always felt it acutely -- the sting of shame for being poor.  I used to lust after luxury watches & expensive clothes particularly when I was a teenager, and as soon as I could get credit cards I started buying them. It didn't end well.

I remember being amazed at my middle class friends when I was in my 20s -- why weren't they wearing Rolexes and driving BMWs when they could easily get them on the tick, like I was?  I realise now that they just didn't really want them all that much, not like I did.  They'd always had "nice things" and were comfortable with their place in the hierarchy. They didn't feel the need to pretend to be wealthier than they were, and wearing Rolexes and driving BMWs was trashy to them anyway.  They had sights set on building wealth, on holiday homes and early retirement.

Range Rovers are emblematic of this I think -- a vehicle designed (in the popular imagination at least) for driving around your country estate, now generally seen parked outside semi-detached houses in working class areas (and 9 out of 10 of them on the tick).  I'm no psychologist but it seems pretty clear to me what this is all about.

I had a long discussion with my friend who o mentioned above was wealthy:

She broke it down to me like this, when her business started going correct: she purchased loads of cars on finance and one for a better word had a lovely time on finance. 

However come a point in her business..... 7 years in the market moved against her and she started to lose some of her income and business that then “woke her up” to the reality of keeping her house in order “buying everything outright” apart from her home, she at this point told me, she purchased her first house at 31 for £125K and sold it for £240K 8 years later that set her up to be able to get a bigger house and her business was going well, she now lives in a house at £580K/ 600K 4 bedroom detached gated house. 

The moral of story is: She enjoyed the money she made nearly lost it all and then become sensible. I don’t know if this happens to everybody. 

Mitzj7374

Her attitude is now, only cash. The only thing she spends serious money on is her house. And buying rental properties.