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A December to Remember

Financial Planning Dentist
You may have heard some of these eye catching sales promotions where a guy buys a new car and puts a giant bow on it to surprise his wife. First, under no circumstances should you buy a $50k car without the verbal and emotional consent of your spouse. Second, you should immediately review the glossary of basic sales techniques these commercials employ: 
  • 0% APR for the first 12 months
  • Only $2,999 down and $399 a month
  • Free charging for one year on new Tesla Model 3 or Model Y if you buy before the year’s end!
  • Financing for as low as $50 a month for 24 months
  • Enroll in our Rewards Program with our Credit Card and save $200 today on qualified purchases
It’s the “buy now, pay later” sales technique that’s been working for decades. Since we live in a consumer world, large corporations know how to make us purchase goods and services we don’t need and can’t afford with creative financing options. If you’re guilty of falling for it, don’t worry we’ve all been there or at least been very tempted by it. Here’s how to not fall victim to sales promotions that seem like a great deal.  Point of sale finance or lending is a way to appeal to all consumers. Those that know what they want now, those that are on the fence, those who didn’t even know they “wanted or needed” something, and those that like flexibility and options instead of traditional purchasing options.  For Dental Practices, offering third party financing for elective procedures or even non-elective expensive procedures where insurance only covers a portion, is what we’ve typically seen from Point of Sale (POS) financing. But now that big banks offer credit cards that are globally accepted pretty much everywhere instead of private label (like a Best Buy) credit card, we’re seeing it pop up pretty much everywhere. For example, I was asked to either pay for or finance a $499 TV? It’s called instant financing. No approval needed. So why are retailers doing this and why should you care? Let’s say you’re looking like I was to buy a new T.V. You go into the store and you were planning on spending no more than $500. You’ve been saving and your old TVs is really small and outdated so it’s time for an upgrade. You go in and you start seeing huge TVs with big red sales signs! Your eyes light up as you go right to the TVs you can afford. You somehow aren’t nearly as excited because guess what? Right next to your $499 TV there is a huge 75 inch brand new 4k, ultrathin, curved TV for $899! The sales representative approaches, you dodge him like he’s trying to sell you girl scout cookies when you just started a diet.  Ten minutes go by and you are suddenly underwhelmed with a lack of excitement due to your 55inch TV that is in your budget being all of a sudden so small and boring. You go back to the huge TV that’s seemed to get louder and brighter. Planet Earth is playing some beautiful scene and you cannot get your mind off of it. All of a sudden the sales representative comes back and somehow this time you’re suddenly almost ready to give up on your “diet”, or budget, as this just looks too good right now. The representative asks you what you’re looking for and before you know it you’re dreaming about this 75in TV being in your family room. He then says what are you looking to spend? You softly say around $500. The representative says well if you buy this TV you’d be saving $300 as there is a big sale right now and on top of that if you sign up for the store’s credit card you’ll get 10% back for future in store purchases. They then tell you that you can finance it at just $30 a month for 30 months.  All of a sudden, you’re sold. $40 a month for 30 months is nothing! But you think to yourself well I need a sound bar if you get this huge TV because the representative just told you that if you buy this TV you get $100 off a new sound bar. He turns up the soundbar and you’re immediately sold. You grab your cart, load the TV and the sound bar and go to the checkout. They offer you the credit card and you say no as if you’ve just saved yourself from a bad decision and then the little cashier machine says $1,185. You then tell the cashier that you’re doing the finance deal and they tell you how great of a deal it is and you feel a little bit better about what you know is a bad decision. Let’s recap. You had a $500 budget and you spent nearly $1,200 in the blink of an eye. This is POS financing at it’s best. You increased your budget 2.5x by just walking into the store but this happens whether you’re online or in person unfortunately.  Now, on top of your new TV you have your mortgage, Netflix, utilities, new furniture, financed computer, car, new coffee machine and all of a sudden your monthly income is being withered away quickly. Well if we look back into our Savings 101, what is rule #1? Income – Savings = Expenses. What are you doing? Income – Expenses = Savings. Now unfortunately, instead of saving $250 a month you’re saving $210 a month. What did we learn in investing 101? The difference of $50 a month can mean hundreds of thousands of dollars later in life.  Don’t let convenience or monthly costs drive your financial decisions. Make saving your priority and what is left is your disposable income. Understand what is truly valuable and what you need vs. what the store/ media makes you think you want.  Guess what? If you think you’re beating the system because something has 0% interest, think again. Companies aren’t in business to lose money, they’ve baked the interest they would’ve received into the cost of your new purchase.  The newest marketing techniques are there to make you spend more. You’re much more likely to spend more when there is a “deal” and you can finance it. So before you make your next purchase think about whether you want it or the store wants you to want it. Also, using a credit card to finance is easy but is a slippery slope that most people don’t get out of. Short term thinking creates long term pain. 

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