James d. Gwartney

Video:
How to Save Money on Everyday Expenses
Dave Ramsey, a leading financial advisor in the United States, highlights the
importance of making a personal commitment to forming sound money habits. He claims:
“The thing I have discovered about working with personal finance is that the good news is that
it is not rocket science. Personal finance is about 80 percent behavior. It is only about 20
percent head knowledge.”
(102)
After reading the entirety of Part 4, you will have the head
knowledge. Are you ready to focus and commit to aligning your consumption, saving,
borrowing, and earning decisions with those that promise financial stability and lead to a
rewarding life?
Elements 4 through 12 will provide additional details on how to get more out of your
spending, avoid imprudent debt, plan for unexpected expenditures, earn an attractive return on
your investments, and minimize your vulnerability to the risks of life.

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227
Finance Wisely
What happens when you borrow money to purchase vacations, clothing, or other goods that are
quickly consumed or that depreciate in value? What happens when you take out a forty-eight-
month loan in order to purchase a used automobile that will be worn out in two years? The
answer to both questions is the same: You will soon be making payments on things that have
little or no value to you or anyone else. These payments will lead to frustration, bitterness, and
financial insecurity.
Financing an item over a time period lengthier than the useful life of the asset forces
you to pay in the future for something that will no longer be of value to you. As a result, you
will be forced to reduce your future consumption. Further, this strategy increases your
indebtedness and you will become poorer in the future. It is a path to financial disaster.
Does it ever make sense for an individual or family to purchase something on credit?
The answer is “yes,” but, with rare exceptions, only if what you are buying is a long-lasting
asset and if the borrowed funds are repaid before the asset is worn out. This way you pay for
what you bought as you use it.
Very few purchases meet these criteria. Three categories of major expenditures come to
mind: housing, automobiles, and education. If maintained properly, a new dwelling unit may
provide useful life for forty or fifty years into the future. Under these circumstances the use of
a thirty-year mortgage (if such are available to you) to finance the expenditure is perfectly
sensible. Similarly, if an automobile can reasonably be expected to be driven five or six years,
there’s nothing wrong with financing it over a time period of forty-eight months or less. When
long-lasting assets are still generating additional income or a valuable service after the loans
used to finance their purchase are repaid, some of the loan payments are actually a form of
savings and investment, which will enhance the net worth of a household. Like housing,
investments in education generally provide net benefits over a lengthy time period. Young