Do you think you really know how to shop? How do you calculate how much you pay the next time you take a loan? Do you have a system whereby you know how much is it that you can afford the next time you buy a car or a house?
You just bought a car. The installation is around $ 650 a month and you are determined that you can afford to pay the installation. You calculated the interest rate, term of loan and depreciation value and you are very sure that you can afford to maintain the car. After six months driving your car, you feel the pinch of paying your installation and you have a lot of bills, parking tickets and fines that you have not settle.
What do you do after this? You spend less, you travel less to save on your petrol and when all else fails, you decide to sell the car. However, you still have to carry on driving the car because you still have not breakeven your loan wit the finance company. For all you know, you are stuck with your car and financial problem start coming in like termites. Does this sound like you or at least sound like someone that you know?
I am not here to tell you not to buy a car or to nag you that made the wrong choice buying the car. I am not even here to tell you to avoid taking loans and to buy your car in full cash. However, what I am going to do is to teach you how to calculate whether you can afford or not.
You may think that I am talking nonsense and that I do not do a thorough research on this topic. Well, think again. It's because I see this problem too often that thought about it for three days in a row and try to think of a way to tell people on how to calculate the right way. A method a nine year old will know how to apply!
The method that I am going to share with you is simply what I call the 'Percentage Calculator TM'. Let me share with you how. Human beings are better at number 0 to 100. What a better way to calculate everything in percentage. If you say $ 2500 (100%), savings is $ 500 (20% of income), expenditure including mortgage or rental is $ 1500 (60% of income), you are only left with 20% of your income that is $ 500.
With 20% of your income left, and knowing that you expenditure is kept at the minimum, do you want to buy a car still? You may disagree with me and tell me that with $ 500 you can still afford to pay your monthly installments. I totally agree with you but does this mean you would give up your shopping, holidays and entertainment? So, my advice is, the next time you buy something in installment or credit, try to calculate it in percentage, it will save you from unnecessary financial deficit in the long run.