Why you should pay for luxuries with cash

A reader took issue with my advice that luxuries be paid for with cash. His basic argument was that if he waited until he had enough cash to pay for the swimming pool his family wanted, the kids would be in college.

As a fellow parent, I sympathize. Kids grow up quickly and our time with them is all too brief. But that doesn’t justify taking on enormous debt.

Here’s where I think we go wrong when we’re trying to talk ourselves into a purchase we can’t afford:

We confuse wants with needs. We go pretty quickly from “Hey, a pool might be nice” to “A pool would help us create great family experiences” to “We must have a pool for the good of our family!” Once you convince yourself you “must” have something, it’s easy to take the next step to justify taking on debt to purchase it.

We fail to consider alternatives. If you want to swim, you’ve got tons of other options, including:

An above-ground pool
The local Y
A neighbor’s pool (perhaps you can share maintenance costs in exchange of access)
Local rivers, lakes or oceans
Swim clubs
Local hotels and motels
Water parks

If what you want is to create family bonding experiences, your options are even greater. You can have backyard barbecues, outdoor movie nights, regular game nights, trips to local parks, picnics, and on and on.

We don’t consider the real cost. When we borrow money, we often focus on the monthly payments rather than the total cost of what we’re buying. A $25,000 home equity loan at 8% paid over 20 years means you’ll pay $50,000. That would pay for a lot of truly fabulous family vacations. You’ve got to ask yourself if a hole in the ground is really worth that expense.

If you still think it is, and a pool would add value to your home (it doesn’t always; talk to local real estate agents), then you might be able to justify financing half of the cost. Remember that home improvements aren’t investments; you rarely get back what you paid for any remodeling project when you sell the house. If you can’t save up even half the cost, you really can’t afford the project–no matter what your contractor, lender and kids are telling you.

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