I used to be very impressed by fancy cars and large houses, but now that I understand how many people get them, not so much… Because of my inexpensive living conditions and my additional side business income, I do have quite a large amount of disposable income (somewhere in the neighborhood of $2,000 a month). With this I could easily buy a bunch of stuff on credit and afford the payments.
I could go out and buy all of the things listed below:
- Executive Home
- Fancy Mercedes
- Trips to Bora Bora
So that looks great and all, right? I mean, who wouldn’t love to live in an executive home with a yacht floating in the lake behind you and a Mercedes and crotch rocket parked in the garage (not to mention the exotic trips from time to time). You might impress your friends for a few years, but when you run the calculations, all you’re really doing is spinning your wheels and renting this stuff, which would ultimately leave you broke in your retirement years.
Interest and Depreciation
I have decided not to go the route of buying things on credit, mainly for the reasons of credit interest and depreciation. In the example of the Mercedes. If I bought that car brand new, it would probably cost me about $40,000. After factoring in the interest I would pay on it over the course of 5 years, it will actually cost me closer to $45,000.
But, what is this car worth after those 5 years? Probably somewhere around $15,000 or so (due to depreciation)…
So, in order to buy this car I paid $45,000, but the value today is only $15,000. That to me just sounds like idiocy. Without even factoring in the insurance, taxes, fuel, and maintenance, this car cost me $6,000 a year, all because I wanted to look fancy in front of my friends.
It Is Just Stuff
I once owned a fairly new Nissan Altima. When I bought it, I’m pretty sure I had drool falling out of the side of my mouth. I just couldn’t wait to call it my own and drive it to each one of my friends’ houses to show it off. It did give me a feeling of satisfaction when I drove it…for about 2 weeks. After those 14 days, the high really wore off. It was just a car that got me from Point A to Point B.
I assume the same would be true for the house, the motorcycle, and the boat as well. They are just things that are fun for a while, but like everything else, they eventually get less amusing over time. However, when you buy these items on credit, you are still stuck with the bill for many years, which ultimately prevents you from getting ahead financially. With just a few bad decisions, you could become trapped for life financially.
Will It Make You Happy?
As it turns out, my experience with the Nissan Altima was not an isolated one. This is the feeling that many people experience when they purchase something new. The initial couple of weeks are fun and exciting, but soon that feeling wears off and the excitement is gone. Stephanie Rosenbloom wrote a piece a few years ago titled, “But Will It Make You Happy?” It is an excellent article and I encourage you to read it. Sometimes living simply is far more rewarding than buying a bunch of stuff.
What do you think? Would you be happier with more savings and less stuff?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.