In a recent episode of The Ramsey Show, hosts George Kamel and Jade Warshaw responded to a caller named Jacob from Detroit, Michigan, who was considering financing an $8,900 Rolex watch. Jacob, a 20-year-old full-time worker, was looking to make his dream of owning a luxury watch a reality, but the advice he received was a stark reminder of the potential financial pitfalls of such a decision.
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Jacob explained his situation: "I'm employed, working full-time and overtime. I'm single, so I'm debating on doing it." He mentioned that he already has a car payment and rent to manage, which raised immediate concerns from the hosts.
Kamel quickly honed in on the issue. "You have a car payment? So, you want to add another payment. That's going to help you win financially?" Jacob admitted that financing the watch might help him build his credit, but the hosts quickly challenged this idea.
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Warshaw shared a cautionary tale about a previous caller overwhelmed by debt after seemingly small purchases snowballed into over $100,000 of financial obligations. She warned Jacob, "What you're about to embark on feels like the beginning of that same series of events." The message was clear: financing luxury items like a Rolex, especially at a young age and with existing debt, could lead to bigger financial mistakes.
The conversation then turned to the motivations behind Jacob's desire for the watch. Kamel asked what caused Jacob to feel like he needed a watch he couldn't afford. "Was it friends, Instagram, or are you just into watches?" Jacob responded that he was a watch enthusiast, but Kamel wasn't convinced this was a wise financial move.
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"You are not in a place financially to buy this watch," Kamel stated plainly. He encouraged Jacob to prioritize financial goals like paying off debt and saving for a home rather than indulging in luxury items. "Even if you had the money, I would tell you not to do this because you have other debt. I assume you have financial goals in life. Do you want to own a home one day?"
After learning that Jacob makes about $40,000 a year, Warshaw did some quick math and helped him understand that the watch would cost him 25% of his annual income when factoring in taxes – an expense that she pointed out doesn't make sense given his current financial situation. She urged Jacob to reconsider his priorities, stating, "You're just getting started. The truth is, like George said, you don't make enough to buy this watch. You really don't."
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The conversation emphasized a key principle of financial success: living within your means. Kamel shared his experience of wanting nice things when he was young, only to realize that financing those desires can lead to a life burdened by debt. "Do you want to look wealthy or do you want to be wealthy?" he asked Jacob, stressing that the latter should be the ultimate goal.
The luxury goods market is thriving in the U.S. In 2023, the market was estimated at $253.7 billion, expected to increase to $369.8 billion by 2030. Jacob isn't the only person contemplating financing a luxury item. The average American credit card debt in Q3 of 2023 was $6,501. What's more, the total average debt for Americans strongly correlates with their credit scores. The higher the credit score, the higher the debt – highlighting Jacob's desire to build credit, but will it help him in the long run?
The take-away from this episode is clear: financing luxury items, especially when you're young and still establishing your financial foundation, can lead to bigger money mistakes. For those considering similar decisions, thinking long-term and prioritizing financial stability over short-term desires is essential.
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This article Ramsey Show Hosts To Caller: Financing An $8,000 Watch Will Lead To Bigger Money Mistakes originally appeared on Benzinga.com
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