Buy, Borrow and Pay for Major Purchases

There are three ways to handle major capital purchases.

The Debtor - a person that makes post purchase installment payments at interest

The Saver - a person that makes pre-purchase installments and delays the purchase until it can be paid in full.

The Wealth Creator - a person that builds a growing capital base and maintains the growth of the reserve while making purchases.

Let's talk about how people Buy, Borrow, and Pay for Major Capital Purchases. What do we mean by a major capital purchase? It is an expense you have that you cannot pay-in-full from your weekly or monthly cash flow - like a car or wedding. Let's look first at how we BUY things. [You will notice that BUY in the header is bold letting you know which of the three subjects you are discussing.] First is the Debtor - a person who "works to Spend". They have no savings, they don't earn any interest, they pay interest. Next, the Saver - who saves to avoid paying interest. They earn interest on their savings, and when it comes time to make the purchase, they pay cash. Finally, the Wealth Creator saves too, but chooses to use Other Peoples Money to maximize efficiency. They compound their interest and when it comes time to make the purchase, they collateralize - meaning they use someone else's money and keep compounding interest on their money.

Let's look at how each handles BORROWING because all three must borrow to make their purchase. [Click on the word Borrow in the header.]

The Debtor borrow from the lender at the highest market rates, using their future earnings as collateral.

The Saver borrows from themselves which reduces their current collateral position and resets compounding. They also bring Human Nature into the discussion. There are a few people who borrow from their own accounts and put the money back, but I know of no one who also puts money into the account equal to the interest they lost while they had the money out.  

The Wealth Creator borrows from a lender at negotiated rates, using their own money as collateral and continues to earn uninterrupted compound on the money they have in their account.  

Let's look at how each PAYS for their purchase. [Click on the word Pay in the header.]

The Debtor makes payments to the lender at the highest rates. No options.

The Saver makes payments to their own account to get back to where they were before the purchase, giving up the money they spent plus the interest their money could have earned as well.

The Wealth Creator must make payments to the lender which allows their money to earn uninterrupted compound interest and maximizes the benefits available in their Private Reserve Account.

No math presented on this screen.