# Never spend your own money - spend the bank's



## Grasscutter (28 Oct 2017)

Has anyone every heard this expression before?
I was raised not to borrow if it was avoidable and it's a philosophy I've always lived by.
However a very money-savvy (she works in accounting) friend confused me this week by giving me her philosophy which is the opposite. 'Never spend your own money, spend the bank's'. While she wouldn't borrow at a high rate obviously - even if she had the savings to renovate her home for example, €20,00 she would still borrow the money - because she says that way you have your renovation and still have your savings. Yes you pay more in the long term but her theory is realistically you would take longer in time to save that €20,000 again and may never do it because saving is harder than spending. She borrows regularly for things like holidays even though she could pay for them in full - my head is fried trying to work out is her method more sensible or mine. I rarely have savings because I pay for everything up front - when I accrue a decent amount I change the car and they are wiped out.
I'm keen on a new suite of furniture which I could buy - or get at 0% APR over 3 years. My very strong instinct tells me purchase it in full -because that's what I'm used to whereas my friend says I'd be nuts not to go for the 3 year option.


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## Monbretia (28 Oct 2017)

Nope, never heard it, in fact my father says the opposite, he says you will think twice about buying something if it's your own money you are spending but if you are spending borrowed money you will buy things you may not have bought or will not be as careful with your purchase.

Personally I would only borrow for a house, I have never borrowed for cars although that is necessary for some people, I just am not bothered by cars and drive a 15yr old one!   I would never borrow for something like a holiday.   Maybe that system works for people who are very bad at saving but can deal with the discipline of having to pay a regular payment.

I do know that I regretted not borrowing to convert my attic many moons ago, it would have cost 5k and I wanted to convert it so it could be used as a playroom, anyway I saved instead but by the time I had the money it was a bit late for a playroom   In that case I should definitely have borrowed.   Borrowing for something tangible that improves your quality of life and is affordable obviously is sensible but other than that I prefer to just pay for it if I have the money.


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## dub_nerd (28 Oct 2017)

It seems to me these strategies are more about psychology than financial best practice. I'm not saying that in a bad way, just that it probably means the same strategy won't suit every individual. I know people who adopted the "spend the bank's money" approach ... and then turned out not to be very good at estimating what they could afford and their ability to pay it back. I worry I'd be the same, so I don't trust myself. I had a mortgage for one 12-month period, and bought one car on hire purchase which I later regretted, both about 30 years ago. Apart from than I've never borrowed a cent and bought house, cars, and everything else out of savings.


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## Boyd (28 Oct 2017)

Grasscutter said:


> However a very money-savvy (she works in accounting) friend.....


Hmmm, I would contend two things are not necessarily related!

Personally, I would disagree with her approach. She seems to be completely disregarding that there are different _types_ of savings. Taking the renovation example, its unlikely that she would decide on a random Tuesday to spend 20K on a home renovation - this is obviously something that would be planned over a number of years, giving time to save _specifically _for it, or at least a portion of same. You then can use that money and still have your emergency savings. Saving towards a specific goal and using that money for said goal is _very different _than blowing every cent you have each time you need to make a purchase.

Similarly, buying a couch is not a spur of the moment thing. Most people would spend months looking at options, colours, styles, prices etc, again giving time to build up savings for same. I really don't see the point in having savings earning 0.1% interest if you are repaying loan of 5% or 10%, not to mind credit card interest rate.

I would break savings down by their usage and goal, something like this:

Emergency fund - ideally you should never spend this, save for an emergency
Larger savings for specific things - home renovation, kids college fund, change of car
Nice to have savings - holidays, fancy clothes, dinner out etc.
Use for anything savings - clothes
Obviously it all depends on your capacity for savings, but I think having separate savings accounts for these various things (however small they may be starting out) is good way to compartmentalise the cash. Its all mental accounting at the end of the day, but I think someone is much less likely to withdraw from a savings account called "New Kitchen" to impulse buy a pair of shoes, compared to just having "savings" account, as they will think "oh, I've been saving for these shoes", when in fact they only just thought of buying them now!

I would buy your furniture in full, its then yours. Also, haggle if you are doing this to get better upfront price. Absolutely all banks, credit card providers, high street stores etc want you to pay on credit and then pay the minimum each month. This is how they own you.


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## Gordon Gekko (28 Oct 2017)

There’s nuance to the discussion.

In my view, there’s merit in keeping an emergency fund which earns 0% and borrowing, if necessary, at higher rates.

The logic being that should an emergency arise, credit may not be available at that point.

But in broad terms, having debt and surplus cash is bonkers.


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## noproblem (28 Oct 2017)

Don't know about her philosophy on spending the banks money and holding on to her own for house renovation, holidays, etc, but if she's getting something for 0% interest, eg, a car, then she would be a fool not to take advantage of that. Personally, i'd only borrow if I really had to, but each to their own. Funny thinking for an accountant though and in fairness, pretty stupid of her, if one is to call a spade, a spade.


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## Fella (28 Oct 2017)

Gordon Gekko said:


> Buying houses etc out of savings is hardly relevant for 99% of people. Even someone on €500k a year typically has a mortgage.
> 
> And the other side of it is fun; who wants to be the wealthiest debt free person in the graveyard?!
> 
> It is great to spend surplus cash on having fun.



As someone who paid their mortgage off recently and all other debts , this is where the fun begins , all your money is your own now and you don't have to pay anyone else before paying yourself. It's less stress it opens up many possibilities. It's wrong to assume that people are having less fun paying mortgage off early , been sensible early means you can be carefree later


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## dub_nerd (28 Oct 2017)

Gordon Gekko said:


> Buying houses etc out of savings is hardly relevant for 99% of people. Even someone on €500k a year typically has a mortgage.


Exactly my point, really. They are not thinking outside the box. A person in that category could well have a million euro mortage or more, on which they will pay the same again in interest. "Spending the bank's money" actually means the bank gets to spend _your_ money. Whereas those people could easily afford a basic house on two years savings, even after 50% tax and modest living expenses. They can then trade up to the bigger house without effectively buying the same house for the bank too.



Gordon Gekko said:


> And the other side of it is fun; who wants to be the wealthiest debt free person in the graveyard?! It is great to spend surplus cash on having fun.


The people I know in that wage category generally don't have time for fun. They are usually stressed and exhausted.


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## Gordon Gekko (28 Oct 2017)

I think that smart use of borrowing has a place in a sensible financial plan.

I’ve some debt at ECB +0.5% but it’s being used to generate a 6.5% gross yield as part of a plan to be debt free at 50.


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## galway_blow_in (28 Oct 2017)

Grasscutter said:


> Has anyone every heard this expression before?
> I was raised not to borrow if it was avoidable and it's a philosophy I've always lived by.
> However a very money-savvy (she works in accounting) friend confused me this week by giving me her philosophy which is the opposite. 'Never spend your own money, spend the bank's'. While she wouldn't borrow at a high rate obviously - even if she had the savings to renovate her home for example, €20,00 she would still borrow the money - because she says that way you have your renovation and still have your savings. Yes you pay more in the long term but her theory is realistically you would take longer in time to save that €20,000 again and may never do it because saving is harder than spending. She borrows regularly for things like holidays even though she could pay for them in full - my head is fried trying to work out is her method more sensible or mine. I rarely have savings because I pay for everything up front - when I accrue a decent amount I change the car and they are wiped out.
> I'm keen on a new suite of furniture which I could buy - or get at 0% APR over 3 years. My very strong instinct tells me purchase it in full -because that's what I'm used to whereas my friend says I'd be nuts not to go for the 3 year option.



sarenco would love this woman


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## galway_blow_in (28 Oct 2017)

Gordon Gekko said:


> I think that smart use of borrowing has a place in a sensible financial plan.
> 
> I’ve some debt at ECB +0.5% but it’s being used to generate a 6.5% gross yield as part of a plan to, be debt free at 50.



good debt v bad debt

the person in the OP,s story appears to use a lot of " bad debt "


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## Leper (29 Oct 2017)

I have heard of the expression (Title). Like somebody pointed out earlier, it is all about psychology. You borrow, you must pay back; don't borrow you lose what you've saved. Another similar mindset is that when you buy a car or a house you tend to go for the one just outside your reach and you make financial endeavours to attain. After you have successfully bought the house (or car) you are in a financial positive mood. In other words it's all in your head.

Mrs Lep could have been the person who coined "Never spend your money . . . Spend the bank's." . . . . or should I have said the "Credit Union's." 

But, if you look coldly on your saving/spending and what you can save, then cash up-front is the answer and you will save.


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## Gordon Gekko (29 Oct 2017)

Sometimes borrowing makes sense; far better to take a home improvement loan now if you need to do something and repay it over the coming years rather than save over the coming years to do it then.


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## twofor1 (29 Oct 2017)

Grasscutter said:


> I'm keen on a new suite of furniture which I could buy - or get at 0% APR over 3 years. My very strong instinct tells me purchase it in full -because that's what I'm used to whereas my friend says I'd be nuts not to go for the 3 year option.



Is it really 0% though ?

I was offered 0% finance on a new car but it was on the list price, I bought for cash and got a 10% discount.

In my case 0% finance would have cost over €2K.


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## cremeegg (29 Oct 2017)

I can still clearly remember the sense of shock I had when I first heard this idea, "why spend your own money, spend the banks, they have plenty of it", this from a man who built a business from scratch to employing over 1,000 people today.

Clearly you need to be in control of the cash flow, and he may have been thing of spending to invest rather than spending to consume. However the idea seemed to be that spending the banks money gives you more flexibility.

I borrowed €10k recently to send my child to college and will probably do the same again next year. Now I could have taken that money from savings but I think I am in a stronger position with the savings still available to me and a €300 a month liability to the bank. When she becomes financially independent I can then clear off the loan, or I can continue the monthly payment and spend the savings on anything I choose.

 If you start by spending your own money then you are have less options. This may out weigh the financial cost of the borrowing. 

Indeed rather than cost, the main objection seems to me the possibility that you will just borrow money to buy things you can't afford.


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## Nermal (29 Oct 2017)

cremeegg said:


> I can still clearly remember the sense of shock I had when I first heard this idea, "why spend your own money, spend the banks, they have plenty of it", this from a man who built a business from scratch to employing over 1,000 people today.



This is good advice when starting your own business, so long as the bank doesn't have recourse over your personal assets.

In any other context it's dumb. The problem you have, OP is that you are spending too much, not a problem that can be solved by taking out loans. Just because you have built up savings doesn't mean you should be blowing it on a new car or furniture.

The phrase has a Robert Kiyosaki ring to it - the stupid person's idea of what clever financial advice sounds like.


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## Gordon Gekko (29 Oct 2017)

I agree. I’m firmly of the view that one is better off having €20k in the bank and a €20k loan versus nothing in the bank and no loan.

There are two arguments being advanced here though; entrepreneur man is talking about using leverage to grow his business; others are talking about emergency cash reserves.


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## losttheplot (29 Oct 2017)

Maybe when you borrow millions, it may be better to spend the bank's money.


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## Sarenco (29 Oct 2017)

The idea that borrowing for consumption purposes is somehow preferable to paying for goods and services out of a consumer's own resources is simply bizarre.


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## galway_blow_in (29 Oct 2017)

twofor1 said:


> Is it really 0% though ?
> 
> I was offered 0% finance on a new car but it was on the list price, I bought for cash and got a 10% discount.
> 
> In my case 0% finance would have cost over €2K.



depends how long the duration of the loan was , if it was a 10 % saving over five years , it would make more sense to borrow , 2% per year is a nothing saving

the interest rate on motor loans is rarely below 10% , i borrowed 30 k in 2013 to buy a jeep , rate was 6.74% ( low no matter what sarenco thinks ) , because i own a farm ( rented out ) , i was able to put it down as an agri loan unsecured , the bank didnt care that i was buying a jeep or a tractor or building a hayshed


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## galway_blow_in (29 Oct 2017)

Nermal said:


> This is good advice when starting your own business, so long as the bank doesn't have recourse over your personal assets.
> 
> In any other context it's dumb. The problem you have, OP is that you are spending too much, not a problem that can be solved by taking out loans. Just because you have built up savings doesn't mean you should be blowing it on a new car or furniture.
> 
> The phrase has a Robert Kiyosaki ring to it - the stupid person's idea of what clever financial advice sounds like.



100% , the person in the original post is borrowing for consumer discretionary , not productive assets or even a must have like a car


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## Sarenco (29 Oct 2017)

galway_blow_in said:


> i borrowed 30 k in 2013 to buy a jeep , rate was 6.74% ( low no matter what sarenco thinks )


If you want to borrow money to fund a car purchase that's obviously your choice but you are fooling yourself if you think a real interest rate of 6.5% is somehow cheap money - it isn't.


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## galway_blow_in (29 Oct 2017)

Sarenco said:


> If you want to borrow money to fund a car purchase that's obviously your choice but you are fooling yourself if you think a real interest rate of 6.5% is somehow cheap money - it isn't.



not to buy a house !  , to buy a car - vehicle  , its  low , my brother is a full time dairy  farmer , he is thinking of buying some farm  land close to where he lives at the moment , best interest rate he can get is 5.76% and thats secured , many loans out there are not at mortgage rate levels


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