Financial Peace University – Week 6

As you all know, I’m going through Financial Peace University (FPU) with my BF (Mr. Hive). If you’re new to the story you can read about the Preview Night, Week 1, Week 2, Week 3, Week 4, and Week 5 by clicking those lovely links. =)

Week 6 of FPU is about buying.

There was so much good information in Week 6 that it is kind of difficult to know where to start.

To begin with Dave started out by reminding us the bottom line when it  comes to companies: They want our money. They will use everything they can to their advantage to make sure that our money belongs to them. They will sell to us by making it personal (think car salesmen), they will sell to us by offering financing as a gimmick (and they make out like bandits on it), they sell to us in ads everywhere we look, and they sell to us by the product itself (position, color, packaging, branding, etc, etc, etc).

None of this itself  is bad, of course, but it is important that as consumers we KNOW what’s going on so that we don’t get swindled into buying things we don’t need or want.

According to the Neilson Family statistics, the average person will see 2 million commercials by the time they reach 65 years old. The book Affluenza (a fantastic book, btw) reports that most people will be exposed to 2-3,000 advertisements per day. We are constantly being sold stuff. Constantly. (An excellent study on the psychological effects of heavy TV watching can be found here.)

[Another sad statistic from the Neilson Family study: Number of minutes per week that parents spend in meaningful conversation with their children: 3.5 Number of minutes per week that the average child watches television: 1,680]

Apparently the amount of money we spend is directly correlated with how much television we watch per day. (Maybe this is why so few personal finance blogger have cable?)

When I was dating Mr. Baseball one of his roommates couldn’t watch a Taco Bell commercial without getting up, leaving, and getting Taco Bell. I thought this was a joke at first until I saw it in action one day. We were sitting watching a TV show. A Taco Bell commercial came on. He started salivating. “Yanno, that sounds really good!” And he got up, left, got Taco Bell and came back. I wouldn’t have believed it if I didn’t witness it. Advertising works. And it works really well.

When my sister was 4 (I was 18 at the time) she stayed the weekend with me in my dorm. I had to go to Home Depot for something and she threw a HUGE temper tantrum in the store and in the parking lot because we were leaving Home Depot and I wasn’t buying her anything. There were huge tears, yelling, screaming, pacifying on my part. She wanted something and she wasn’t going to be happy unless she got it. The funny thing being – she didn’t want anything in particular at Home Depot – she just wanted SOMETHING.

There is definitely a spoiled little 4 year old inside of me – and she wants things all the time. She wants a new TV, she wants a new couch, she wants a new car, she wants it and she wants it NOW.

Essentially, Dave says, the difference between the little 4 year old inside of us and the adult  is maturity. That maturity tells us that while getting that item might be fun, it is even funner  if we can AFFORD it.

The last part of the lesson this week was about what to do when we’re faced with buying something that we can’t afford or that is a significant purchase (~$300 for the average person). The problem being that we have the ability to spend more than we make, so we have to develop the ability to how power over our purchases.

The first thing he recommends is to SLEEP on it. Wait overnight. If you still want it the next day, and then the next, then it is probably worthwhile. I do this a lot for clothes. I’ll try something on, then go home. If I am still thinking about the item the next day I’ll go back and try it on again. If I still love it, then I’ll get it. 90% of the time, I don’t go back.

Secondly, consider the motives you have for wanting it. Do you want it to impress people? Do you want it because it is “cool”? I really want a new TV, but I know that getting one isn’t a good financial decision. I just want one because I want it. Not because I need it. My resolution is crappy on my old TV, but it still works. My motive is just to replace something outdated, not out of need.

Third, don’t buy anything you don’t understand. Don’t purchase an insurance policy you haven’t researched. Don’t sign a home loan unless you understand what you’re getting in to. If you don’t understand what you’re buying, learn about it first and then come back.

Fourth, consider the opportunity cost of this purchase. What are you not able to buy because you’re buying this item? Paying for things in cash has definitely made me away of my opportunity cost. Especially my food money (“If I buy this Rockstar now will I have enough money for date night later this week?”). This is also true for big purchases. What will you not be able to buy because you spent the $400 on the new TV? What will you not be able to invest in because you bought a $40,000 car instead of a $10,000 car? What are you giving up to get this thing and is it worth it?

Fifth, seek counsel. Ask someone what they think about you buying it. Someone who isn’t afraid to tell you no. Your wife. Your husband. You blogging community. “I really want to buy this car – tell it to me straight – is this a bad idea?” Often times we get so caught up in the EMOTION of the purchase that we can’t look at it objectively. It is good to have someone there to guide and counsel you that you trust. Also, one rule of thumb that I’m lived with that tends to work well in most situations: If you have to ask, the answer is probably “no”. For instance, if you have to ask if buying a new car is a good idea, you’re seeking someone to re-affirm something you know is a bad idea. You’re looking for someone else to support your bad financial decision. This doesn’t mean that you shouldn’t seek counsel for major decisions, just that if you’re looking for reassurance that something is a good idea – it probably isn’t.

Thoughts on FPU Week 6: I really enjoyed this lesson, but Mr Hive definitely did not. Well, he liked what he learned, he didn’t like the implications.

See, last Thursday night Mr Hive went out and impulsively bought a $350 TV. Not only did he go out and do this on a whim, he didn’t talk with me about it, he lied to me about what he was doing that night (we were supposed to have a date night and he canceled to “do his taxes” – which apparently is code for “buy a new TV”), and then he didn’t tell me he did it for another 2 days afterwards. I was P-I-S-S-E-D.

I hated that he made such an impulsive decision. I hated that he made it without me. And more than anything I hated that he then hid it from me.

After this lesson he understood why I was so angry about it. He essentially went against the entire list of what you should do for a significant purchase and in the process betrayed me. He apologized for it before, but after listening to an outsider explain why you should do those things (that outsider being Dave Ramsey), he apologized from a more sincere place since he actually understood why I was so upset.

Would I have stopped him from buying the TV? Probably not, right now it is still his money – not our money. But I would have at the very least liked to have been asked my opinion on the purchase. Maybe subconsciously he knew what my opinion on it would be though?

Another point that really struck me this week was the issue of wants vs. needs when determining out motives for doing things. It is very hard for most of us to separate our wants from our needs. I “need” to send my dog to daycare everyday. I “need” to replace my car ASAP. I “need” to get a new pair of running shoes. I “need” a new suit for work.

I am seriously thinking about spending April in a “need only” challenge where everything I buy I assess whether I truly need it or just want it. I’ll definitely be giving it some thought, thought I’m not sure if it will be anything more than a thought experiment at this point.

All in all, this week’s lesson was really great.

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7 Responses to Financial Peace University – Week 6

  1. That sounds really awesome. What I’m impressed with most about FPU is how it seems to get couples talking to each other about money and understanding each other better.

  2. Great post. I am really impressed with the detail. I will tell you that I run a cafe/coffee shop and it is really hard to reach people with out advertising. Not all advertising is bad, it is a way for small businesses to get their name in front of you. Because if we don’t big businesses like McDonald’s will steal you attention away. However, I do feel I know what you mean when it comes to knowing what you want vs knowing what you need. Really nice post.

  3. ndchic says:

    I find it very interesting that the more TV one watches, the more they spend. I think it is also the lifestyle that we see on TV that makes us want to spend. We never see a character wearing the same thing twice and they are always a step ahead of fashion.

    I would do well to remember that every purchase should really be evaluated. I know that I do some impulse buying. It’s interesting that your bf had just made a big impuse buy. It’s cool that he apologized to you and understood where you are coming from.

  4. I love these FPU recaps. Sleeping on it overnight is such a great idea. I wish I did that more often over the last few years – I wouldn’t have gotten myself into half of the pricey purchases I made on an impulse!

  5. oh I can so, so relate.

    The husband is a SPENDER. I am a SAVER. We clash constantly over money. And he hides purchases from me all the time, until I get the credit card bill. I get so angry sometimes…

    I just looked up FPU, but there are none near where we live. Bleh. Will keep checking!

  6. Pingback: What’s Your Number? « Small Steps for Big Change

  7. Pingback: Financial Peace University – Week 7 « Small Steps for Big Change

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