Deciding On Value from Entertainment Loans
First and foremost, we need to decide whether a purchase is in of itself worth the money that we spend on it, its cash price in other words. If we end up borrowing, either directly or indirectly, for the entertainment item or expense, we need to pay even more attention to this, as financing the purchase tends to increase the cost moderately to very significantly, depending on the rate.
People tend to look at their borrowing on an item for item basis, instead of looking at the whole situation, the big picture of how their spending influences both their borrowing and their ability to repay these loans.
If, for instance, you are spending $400 a month on a car payment, you tend to look at this payment in terms of the value you get out of this particular car, versus a cheaper option for instance, or even perhaps a more expensive option.
It is important to assess this value at the individual level, where hopefully you make the right choice here in conforming to your overall utility and needs and circumstances. When we borrow for something though, we need to look at the bigger picture, how our spending overall and are spending on other things, including what we would consider to be entertainment spending, may influence this borrowing need.
Having to make payments on the car we bought does affect the cost of the car, but it also affects the cost of other items we buy, if these items are discretionary. Part of the value of the car may be seen as at least essential enough, the need to get around for instance, the need for a reliable vehicle, and so on, but some of this will be discretionary in nature.
So, we decide that the discretionary part of this purchase is worth it to us, including the extra cost of borrowing. We now need to look at our other discretionary spending the same way, because the fact that we need to borrow for the car is going to influence the ultimate cost of these other items and services.
A considerable part of this discretionary spending is going to be of a category that we can consider to be entertainment spending. In the broad sense, we can consider entertainment spending to be buying something based upon what makes us happier, as opposed to what we really need, even though we do indeed have a need for happiness.
We might be happier eating our lunch in a restaurant rather than bringing our lunch, and the difference between the two can be seen as an entertainment expense. While we don’t take out a loan to buy our lunch, it might be that the difference between bringing our lunch and eating out may end up amounting to a significant portion of that car payment, let’s say half of it, and therefore the half of the payment plus interest can be seen as the true cost of the lunches.
Entertainment Spending Can Really Add Up
When we look at people who have really overextended themselves, and have gotten into these messes not from loss of income but from just spending too much money, borrowing too much is obviously the big culprit here. If one did not borrow and tried to overspend, one would reach the point where they simply spent their money and could not go beyond that.
This might result in some hardship, but over time, we would tend to adjust, as when we make mistakes here and lose value by not being able to buy what we need or want more, this will hit home pretty well.
When we do this through borrowing though, when we run out of buying power, this tends to be at a time where we’ve well passed the tipping point and we can find ourselves in a position we aren’t able to recover from, even with cutting back. This is especially true if we borrow a lot with credit cards, which are offered without the same consideration to our ability to manage debt that regular loans, mortgages, and lines of credit require.
If we are spending more than we can handle or even more than we should on entertainment related expenses, it may not matter whether we have borrowed the money for these expenses directly, as all spending contributes to our ability to handle the debt, although people do borrow quite often for entertainment.
Those who are in rough shape financially, those who have taken on so much debt that it has become unmanageable, will often be spending too much on entertainment and borrowing too much for it as well.
There are good and not so good reasons to borrow, and the good reasons include buying something that you actually do need where the purchase cannot easily be saved up for. This is why home purchases and even car purchases often make sense to borrow for, but this may not be the case with things like vacation homes, recreational vehicles, even vacations.
Many people enjoy what many consider to be these finer things in life, things that we consider or at least should consider to be the pinnacle of discretionary spending, but some see these things instead as actual needs, similar to things like food and shelter and having a car to drive.
Some may be of the belief that taking an expensive vacation once or more times a year is a basic need, and the extent of how affordable this may be to them or whether they would be better served or even made happier spending the money on something else does not get thought about very much.
Deciding On How Much to Spend on Entertainment
There is a hierarchy of needs commensurate with one’s income, and while this can vary considerably among different people, whatever this hierarchy consists of should be what we use to guide our spending decisions.
Entertainment spending can be pretty rewarding, and if one has the more important stuff covered and can do it, then this can work out great. If we don’t think about this that much, whether that be buying our coffee at a coffee shop versus bringing our own in a thermos, to spending huge amounts of money on motor homes so we can travel, it all bears careful thought.
Often times, the smaller stuff can add up to more than the bigger stuff, if the smaller purchases are a lot more frequent. People who advocate saving more will invariably have us looking at these smaller purchases first, to look to see where we might want to cut back, but the truth is, we need to look at all of our spending this way.
Should we be looking to borrow money for entertainment purposes, we need to give this very careful thought, as these aren’t the things that we normally can make sense out of borrowing for.
It’s possible to make sense out of borrowing for entertainment, but the threshold should be seen as very high, where perhaps we’re looking to avoid things like a nervous breakdown to we decided to borrow for a getaway. Even so, there may be more economical ways to deal with these issues.
Almost all borrowing for entertainment purposes is for the most part highly culturally conditioned. Just because a certain thing is popular doesn’t make it a wise choice, or otherwise add any legitimacy.
It people do yearn for a more entertaining life, it is more proper to look to earn it by accumulating the means to spend in the manner they desire, instead of looking to enjoy it now and worry about it later. This can cause some real worries indeed if enough restraint is not used.
Entertainment purchases, as well as any other spending which we could deem to be highly discretionary, are things much better saved up for than borrowed for. The extra cost in interest is only part of the potential pitfalls when you borrow for entertainment, as it may cause us to seek a lifestyle that we cannot maintain, as enjoyable as it may be while it lasts.