The things people say

Read the following statements:

“We paid cash for our car.”

“We paid off all our credit cards last week.”

“We're committed to not borrowing money.”

“We're sending our kids to college because we think it's the right thing to do.”

“We can afford this great new house in the suburbs with 4 bedrooms, 3 baths, and a 3 car garage.”

They all sound pretty good, right? Until you hear the rest of the story.

“We paid cash for our car” — When what they really mean is that they brought in a check for the full amount (that they got from a credit union loan) to the car dealer.

“We paid off all our credit cards last week.” — but now we have a huge second mortgage, along with the ability to charge those cards right back up again.

“We're committed to not borrowing money.” — We'll just take out a home equity loan instead, because somehow that doesn't “count”.

“We're sending our kids to college because we think it's the right thing to do.” — We've taken out loans and put off funding our retirement to do so, so the kids can mortgage their lives later to help take care of us when social security isn't enough.

“We can afford this great new house in the suburbs with 4 bedrooms, 3 baths, and a 3 car garage.” — We qualify for the loan, so we must be able to afford it. The mortgage company wouldn't lend us more money than we can afford to pay back.

The thing is, people don't seem to realize that their actions are different than their words. There's a disconnect there that they're not even aware of. And I speak from experience, because I “paid cash for a car” by getting a loan from the credit union. It wasn't until years later that it hit me — duh! Just because I gave the car dealer cash did not mean that I paid cash. I borrowed the money!

Paying cash is when you save up first. Paying off your credit cards is when you scrimp and focus for months on end. Not borrowing money means you don't borrow money from anyone, including yourself. The only way to “take out equity” without borrowing money is to sell your house. You're not doing your kids a favor by sending them to college and decimating your own financial future in the process. You can afford a house when you have an emergency fund and enough money to pay all your bills each month with plenty left over. (And retirement is a bill from my perspective.) It doesn't matter what the mortgage company tells you.