Budget 101: Luxury vs. Necessity

One of the reasons why people sometimes get into financial difficulty is that they have a hard time distinguishing between the things that they need and the things that they want. Our desires to have more than we can afford can lead to debt, a lack of cash, and even to an abuse of payday loans. While paycheck advances are nice to have when true emergencies occur, they are often used in circumstances where they are not needed. Before you borrow money, whether for a credit card purchase or especially for a cash advance, ask yourself whether you are borrowing the money for a luxury or for a necessity?

The Cost of Borrowing for Luxuries

The biggest problem with borrowing money is that you are taking away from your future in order to pay for the things that you enjoy today. While this may be okay if you are borrowing to pay for an education or for a home, when you borrow to pay for a luxury, your enjoyment of the luxury has often faded by the time you finish paying for it. In addition, you have to pay interest on the amount that you borrow, which means that you are spending more than you have to. For example, if you take out a payday loan to buy a £100 watch today, you may have to pay £15 in interest on that watch. If you waited to pay cash for the watch, you could pay £100 rather than £115. Over time, the money that you save by waiting can really add up.

Using a paycheck advance to buy luxuries is really not that great of an idea, unless you do not have patience. Payday loans are due when you receive your next paycheck, which is often only a couple of weeks away. You end up paying a premium in order to get the item that you want a couple of weeks earlier. Even if the item is on sale, the interest you pay to borrow the money often negates what you save on the luxury.

Borrowing for Necessities

There are times when you need money. We all need to have a place to live, and most of us like to have electricity. If you are faced between eviction and getting a paycheck advance, the paycheck advance makes sense. Similarly, it makes sense to get a payday loan in order to keep the electricity on. It doesn’t make sense to borrow for something that you don’t need. It also doesn’t make sense to borrow money for something that you don’t need right away. You may need a new pair of shoes, but unless you need a new pair of shoes right away, you can probably wait a couple of weeks to buy a pair of shoes, rather than paying extra to borrow the money for the shoes.

Although it can be difficult to wait to buy luxury items, rather than buying them right away, in the end, you will be much better off financially if you can pay cash for any luxury items you buy. Save your use of paycheck advances for things that you really need, like food and shelter.