This post is way off topic from what I normally put up, but it’s definitely food for thought for any of us when we go to spend our hard-earned money.
EOS 7D, 50mm f/1.8 @ f/6.3, 1/80
My father-in-law grew up in a native island village, poor enough that shoes were a luxury. He made his way to the big city, worked his way through college, and started working for a technology company. As the company grew, he got promoted. After a couple decades he was a top executive making over a million a year. His story is a long one, but he lost a little over 2 million in the real estate market crash in 2007-2008. Now he’s retirement age and depends on small businesses he’s invested in for his income. Talk about “rich dad, poor dad”, he’s been both!
He and I were talking the other day while his wife and mine were shopping in the mall. He showed me that the shoes he was wearing, he bought in New York eight years ago for $350. He told me he used to visit Japan on business trips and buy $100 ties without blinking an eye. In Switzerland he bought a $30,000 Rolex. It was nothing to him back then. Now he shops Goodwill, thrift stores, and Ross for clothes. It’s not that he can’t afford something more expensive, he explained, he actually feels good about finding $15 pants which are just like the $75 pants in a more expensive store. The clothes he wears look very nice, and amazingly you can’t tell whether he bought them at Goodwill or Neiman Marcus.
Speaking of jackets: I was looking at NorthFace-style light jackets that ranged from $120 to $180 for about a year before I found their look-alike at Old Navy for $20. I’ve been wearing it for 2 years and it still looks new and sharp. Sometimes it’s a matter of being in the right place at the right time. I’ve been looking at “barefoot”, ultra light weight shoes for a year or so, and just the other day found a pair of $99 NewBalance Minimus for $35 including sales tax. But in the two examples I just mentioned, patience was also required. I didn’t grab the first thing I found because I wanted it. I took my time and kept my eyes open, and saved around $220 on those two purchases as a result.
The whole concept of whether something is “affordable” is fascinating to me. It’s very subjective. I know people who think $500 hand bags are very expensive. But I also know people who’ve paid $3,000 for a simple leather hand bag. We’ve all heard the saying “you get what you pay for”, and on the lower end of the price scale, I think it’s mostly true. The $20 and $30 shoes I used to get from Payless Shoes or Walmart didn’t last near as long as the shoes I paid $60 for. But there’s also a point where you’re paying for the name more than the quality. My old $120 Swatch chronograph did just as good a job at telling time as my $600 Victorinox Swiss Army watch, which in turn, works just as well as a $3,000 Tag Hauer (don’t have one of those). The hardened plastic crystal on the Swatch did scratch much easier than the sapphire crystal on the Swiss Army watch, but function-wise, they were both very reliable for many years.
Value is an important concept, in my opinion. I’m willing to pay more for something I’ll get a lot of use and enjoyment out of. When my wife and I were dating, she got me a Banana Republic pullover jacket that I considered too expensive. But I’m still wearing it often after 8 years and it still looks great. Looking back I’d say it was worth every penny. On the flip side, I’ve paid good money for things that end up sitting on a shelf and rarely used. That feels like wasted money to me and I take it as a lesson for the future.
Hand in hand with the concept of how much value you get out of something you use in your daily life, is the task of research. I’ve found that the more research I do before a purchase, the happier I am – and for longer – with that item. This is especially true when it comes to electronic and technical items like phones and computers. These can be quite expensive, but they can improve your quality of life significantly if you do your homework and make the right choices.
When I got engaged a few years ago, I was driving a 1995 Celica GT that was paid off. It was a cool car and fun to drive, but it was too small for starting a family. I knew I was going to need something bigger and started looking at sedans. I did a ton of research and decided I wanted a Lexus IS300. It was a sedan with sports car handling and rock solid reliability, and a great compromise between a practical family car and a sporty driving feel. New IS300s were going for $33,000 to $35,000 back then and I knew that even Lexus lose a third of their value in the first three years. Used models were around $22,000, but I found one for $14,999. It had a couple issues which cost me less than $1,000 to fix. I’ve driven it for eight years now and it’s still a great car.
Now here’s something else to consider: The salesman at the Lexus dealer told me I should buy a Corolla if I only wanted to spend $15,000 on a car. I could have done that. I could have driven home a brand spankin’ new car! But for the past eight years, for the same amount of money, I’ve been driving a Lexus IS300, and I’m here to say I DEFINITELY got more car for my money. It’s taken me a lot of places and I still enjoy the way it drives. I believe buying a used car in good condition is always better than going broke and then losing half the value of a new car in depreciation during the first three years.
But the underlying principle… The big reason behind this effort to save money on purchases is really “opportunity cost”. This is an economics principle that simply says “whatever you spend on A will NOT be available to spend on B”. Because I spent only $20 (instead of $150) on my jacket, the $130 I saved was available to spend on other things. Conversely, if I spent $150, I would not have the option to use that money for anything else. I didn’t compromise on quality to get a lower price, I found a less expensive alternative of similar quality and style. This is an important lesson I want to teach my kids as they grow up.
Could I afford a $150 jacket if I really wanted to buy one? Of course, but it just doesn’t make sense to me if the same utility and style is available for less. I don’t care how rich you are, the rule still applies. You want that private plane or ocean going pleasure yacht? Buy the used Bentley and save $200,000, which you can put toward your boat fund. Money you don’t spend on A is available for B or C. Just make sure you’re still getting a good value for the lower price.