JW’s Financial Coaching Podcast JW’s Financial Coaching Podcast-A show devoted to answering your personal financial questions and covering current events in personal finance. Giving people a new perspective on their money!

July 23, 2017  
00:0000:00
  • Question I've pondered lately
  • Why do we look at our money on a "per month" basis?
  • What is the right question to ask instead
  • What long term thinking with money does to our actions
  • Quote of the lesson from Dick Bove

When it comes to our finances, a lot of us look at our finances on a “per month” basis. How much is the car payment per month? The student loan? The credit card? The monthly membership dues? Our house payment or rent?

Have you ever stepped back and ask why we do that? On today’s lesson we will discuss why that is and attempt to answer if asking ourselves “How much a month” is the right question to ask

It’ important to discuss this topic because most expenses and debt options are presented through the month payment. This can include things such as our mortgage payment, car payment, credit card statements, store financing options, etc. But there are others things as well that we look at per month, life insurance premiums, phone bills, Netflix/Hulu subscriptions, etc.

These payments are presented on a “per month” basis because it is easier for our minds to digest. We can related to “per month” payments a lot easier than the whole amount. Take for example an automobile. Often when I suggest paying for things in cash, like a car, the pushback I receive is “I wouldn’t pay $25,000 for a car.” However if asked if they could “afford” a $380 car payment the answer is usually something along the lines of “Yeah I could probably do that.”

That’s because we associated a lot of financial “pain” with the $25,000 purchase but as much with a $380 payment. Even though over time those $380 payments include interest and add up to a few thousand over $25,000 payment. When looking at “How much a month?” we rarely look at how long the payments will last.

To me looking at “How much a month?” is not the right question. The right question is simply “How much?” Asking “How much?” forces us to look at the long term and ask ourselves if this purchase fits where we want to be instead of seeing how we can fit this payment into our budget. It’s a really powerful way to look at money.

When I stared to realize this and put this concept into practice my beliefs, attitudes, and my bank account had drastic changes. I had a more long term view on money. When we have a long term view of money, instead of week to week or month to month, we're less likely to make long term mistakes as well.

What Lisa and I try to do then with our monthly payments is to look at those payment and compare it to our monthly income. Instead a lot of times we look at our annual income and compare our monthly payments against that. But when we look at our monthly payment compared to our monthly income we get a better understanding of what this purchase will cost us.

Other resources mentioned in today's lesson

To send in your questions email me at Jon@JWFinancialCoaching.com

Today's quote of the lesson is brought to you by the JW's Financial Coaching Newsletter

“It is a kind of way to play games with monthly payment. Stretching out the mortgage maturity is simply a way to lower monthly payments and stimulate sales. ”  ~ Dick Bove

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