Considering the Not so Frugal Purchase

Are you considering purchasing something ridiculous like a jetski? A $1000 piece of home brewing equipment? A fancy new smart phone? There’s a few hard questions worth asking yourself before you make the plunge.

Can you afford it? Can you pay cash and not be absolutely devastated by the drop in net worth. No wiping out your emergency fund for a new kitchen! Buying it on credit…uh sorry, no, you can’t afford it, forget about it. “Oh but I can afford the repayments!” nope, you can’t afford to buy yourself a debt. Thats stupid, just don’t.

How long will this item last? A lifetime, amazing! 10 years, great! A couple of years, its okay I suppose. A year at most because its got some “fashion” time limit on it, very very bad.

How often are you going to use it? There’s definitely a justification for buying quality things that you’ll use everyday especially when you work out a cost per use of the item e.g A jetski, maybe a couple times a summer till you get bored of towing it places and paying registration on the trailer and then it will sit in the garage for ten years. Say 10 uses, jetskis in NZ cost about $12,000 so $1000 per use. Hmmm Maybe you’re better off hiring one for now until you are absolutely sure you love it so much you’re going to use it every weekend, or better yet use it to commute across the harbour.

man on a jet ski
Just $12,000 to look as glamorous as this guy. Bargain.

How about the home-brew gear, how often does that get used? Probably once a month….for many years, at least until the doc says no more alcohol, which might never happen. So conservatively maybe 10 brews a year for 5 years, 50 brews, cost of $20 a brew. ┬áIf you brew more often or make the equipment last longer costs will drop. Still looks like an expensive spend for a hobby.

Home brewing equipment - grandfather
mmmmmmm grainfather

What about the smart phone, you use it every day for GPS, photo’s, internet, keeping in touch etc. So over a year a $949 works out at 2.60 a day. My last smart phone lasted me 5+ years (Its true I have a 2011 smart phone) so that works out at $0.52 a day. Not a bad price for having a little powerful computer in your pocket at all times.

So for not so frugal purchases, make sure you can pay cash without it setting you back, that it’s going to last and you’re going to use it often enough for the cost per use to be really really low.

What else should we keep in mind?

When we want something bad enough its easy enough to justify it to ourselves, we can make up any number of reasons, truths or half truths (I will surely use this jetski every weekend for the rest of my life!) to get ourselves the object of desire. It can be difficult to sort out these half truths from the facts until after the event has occurred, just like how I promise myself I’m going to eat healthy this week but by Wednesday I’m chowing down on a cheeseburger. It’s hard to protect yourself from future you! Future you is probably going to get sick of jetski maintenance after a couple seasons!

A good budget can help protect you from excessive spending, at the very least all your savings and emergency funds should be out of easy reach and a discretionary fund for free spending is a must. Becoming financially independent doesn’t mean not having any fun ever, but large purchases should be well considered and delayed. The dent in the timeline to financial independence that these kinds of purchases cause should be carefully weighed along with how often you are making these larger not so frugal purchases. A new smart phone every five years is pretty good going, a new smart phone every year is something you might need to reflect on.

 

2 thoughts on “Considering the Not so Frugal Purchase”

  1. Great tips! I typically add two more steps to the end after doing these same calculation.

    1. I multiply the total cost by 0.04 to get the safe withdrawal rate that I could have if I invested instead. This usually stops me from continuing.
    2. I wait a week.

    If I still want the not-so-frugal expense after doing the math as you suggest, and my two add-on steps, that’s when I truly go for the splurge.

  2. I make myself wait for most purchases. Unless, it is likely to be unavailable later. Then I ponder and ask my girlfriend and best friend if a purchase is worth it. Most aren’t.

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