I’ve been at this blogging thing for a long time now. I’ve spent a lot of this time thinking about the Great Money Adventure and what, exactly, separates those who are successful with money from those that are struggling.
I’m not talking about obvious things, like how you need a budget and to quit wasting your money on buying loads of useless stuff. These are things most people know even if they have trouble following simple tenets of money management. I’m talking about common myths people hold about financial decision-making that cause financial hardship.
This week I wanted to talk about the great myth of timing replacement purchases and how it causes many people to lose thousands of dollars over a lifetime.
Stuff Breaks, Deal With It
The second law of thermodynamics guarantees that at some point, all of your stuff is going to break. It is a sad reality that when expensive things break, it interrupts our lives. For example, my laptop bit the dust not two days ago. A blogger without a computer is like a runner on hands and knees. The very real pain of having a valuable, functioning object one day and a worthless lump of manufactured junk the next is the foundation of this week’s myth.
There is an odd belief that one can benefit by timing the demise of their stuff, thus selling at the right time and buying new at the right time so that you optimize your next large purchase and save big bucks.
The Timing Myth in Action
Cars are a great example of this myth in action. Dealerships are full of customers looking to trade the 5 year old car for a new car – all built on the idea that they will maximize trade in value. Unfortunately, the right time to trade in/trade up is based on an irrational gut feeling that our current thing is about to lose value. Most people’s gut feelings are very poor and strongly influenced more by our desire to buy new stuff than to make the wisest financial decision.
The average life of a car is 10 to 12 years, which means that if you are trading in at 5 to 7 years, your car has a lot longer to go. Sure the car will need repairs, but what would you be paying monthly for a new car; $300? The odds are good, that the amount you pay for the car payment would be more than annual repair expenses. It also means that you could be spending thousands of extra money trying to time replacement purchases.
I purchased my current lawn mower on Craigslist. It was an old mower, but the guy selling it admitted to me that he’d been waiting and waiting for the thing to die. “The thing just doesn’t kick the bucket,” he said to me. Three years later, I’m still using the mower this man had admitted would not die. He thought that he would sell now, buy new and avoid imminent death of his old mower. He’d time it just right so that he used up the mower, but still salvaged value before it died. He was wrong. I have little doubt that the mower is going to get me through a fourth year.
Strike Timing and Insert Gambling
How many thousands of dollars are you willing to bet at a single turn at a roulette table? When people try to time their replacement purchases, they are just guessing, based on a feeling no different than picking the first number that comes to mind. It’s the same as gambling, but instead of numbers you are gambling on when your stuff is going to break.
The fact is, for most things, holding on to your old car, electronics and appliances is costing you nothing. That makes holding on to your stuff until it dies the cheapest option. One that will probably save you thousands.