You can save for retirement and still live well. Buy quality goods to get more value for the dollar and to help you maintain appearances.
Maintain your things to preserve their value. Take care of your things and keep them a long time to get your money's worth.
The stereotype of a saver might be a dowdy woman in a sweatsuit clipping coupons at her formica-topped kitchen table and sipping supermarket house brand instant coffee from a cracked mug. Or a disheveled guy wearing a faded shirt with the narrow collars of decades ago, trousers with patches on the knees, and a pair of shoes that have been re-soled five times. You’re sure they know about every 2-for-1 dinner within 20 miles. Somehow, you don’t see yourself living this way. You don’t have to.
You can still live well while saving for retirement by smartening up your spending. Buy value, maintain your things, and get your money’s worth.
First, buy quality goods—things that will serve you well and last. That way, you’ll probably spend less overall than if you bought second rate products. A well made and properly maintained car will often last ten or more years and run for 200,000 miles. A poorly made car will give you headaches from the moment you drive it off the dealer’s lot. High quality stoves, ovens, refrigerators, washers, dryers and dishwashers can last fifteen, twenty or more years.
Look for value per dollar spent. An expensive item isn’t necessarily a better value than an inexpensive one. It could be worse. High quality goods need not cost a lot. Sometimes, they’re 10%, 20% or 30% more than a low quality item, but if they last twice as long, they are a better buy. And if a medium priced item is half the price of a luxury model but is 90% as good, go with the medium price model. Buy on sale whenever possible.
Buy smart. Research your purchases. Use unbiased consumer testing services like Consumer Reports. Don’t rely blindly on a brand name. Some brands that were terrific 30 or 40 years ago are poor choices today. A brand you wouldn’t have considered ten years ago might be an excellent choice today. Keep an open mind and look for unbiased information.
Buying quality helps you maintain appearances. A high quality product will look good even after a number of years. If you want a nice car, buy a nice car. Then maintain it well and make it last.
You maintain the value of your property by taking care of it. Follow the manufacturer’s maintenance schedule for the car. Have heating and cooling equipment cleaned and serviced regularly. Pump septic systems from time-to-time (or you’ll get a very unpleasant reminder why you should). Clean the leaves out of the rain gutters and make sure rain water drains away from the house. Eventually, a house will need a new roof, new siding, repainting, replacement windows, new carpets and new water pipes. Make these expenditures to maintain the value of the property.
Minimize Depreciation—Buy Depreciating Goods Less Often
Almost all consumer items depreciate in value. Cars are the best example. Look around your house and you will see a lot of other depreciation as well. Your stove, microwave, computers, telephones, entertainment systems, furniture, carpeting, clothing, washer, dryer, stove, oven, microwave, dishwasher, refrigerator, silverware, flatware, lawn mower and sports equipment are all dropping in value every minute of every day. A household is basically one big pool of depreciating assets.
On the other hand, your savings and investments, and your home (if you own it long enough) are likely increase in value. Simple principles of arithmetic tell you that you’ll end up with greater wealth if you reduce the amount of money spent on depreciating assets and increase the amount put into appreciating assets.
Buy depreciating items less often. Most depreciation occurs in the early life of an item. Many cars depreciate 50% in the first three years of ownership, and 65% or even 70% after five years. If you buy a car every five years, you will constantly lose that 65-70% in value. But consider what happens if you keep a car for ten years. The depreciation in the 6th to 10th years of the car’s life is minor compared to what happens during the first five years (probably around 20-25% of the original cost versus 65-70% during the first 5 years). Thus, if you keep a car ten years, your depreciation losses from auto ownership are much lower than if you buy a new car after four or five years. Leasing a car is worse than buying one, since you never build any equity in a leased car, but you’ll pay for the depreciation in the car’s value (which is built into the lease payments).
Don’t pay a lot just to get a little more. Many so-called luxury cars are just slightly dolled up versions of standard models. But they cost a lot more. This doesn’t mean you shouldn’t buy what you need. If, for work or fun, you need a four-wheel drive SUV that can go off the road, buy one. Life has to be lived. But think carefully before buying a $58,000 SUV. Wouldn’t one costing half the price also suit your needs? There are plenty of good ones for much lower prices.
If you live in an urban area, think about not owning a car. Subways and buses really aren’t so uncomfortable when they’re saving you $600+ a month in car payments, parking, insurance, gas, parking tickets and maintenance. In a few cities, you can use car-sharing services, where members of the service rent cars by the hour. These services aren’t for everyone, but people who have occasional, short-term needs for a car may find them convenient. And if you can find a cab company where the drivers still smile and crack a joke to earn their tips, take a cab.
There is nothing wrong with driving an eight-year old car, or using a 12-year old washer and dryer. It's a smart financial move to buy a three-year old used car and avoid the sharp depreciation of the early years of the car’s life. There may be something wrong with a person who sneers at you for doing so. Not every fad or craze is truly worth your hard-earned money. It’s perfectly okay to buy designer label clothing at the end of the season in discount outlets, or a new car at the end of the model year. Depreciation is a drag on your wealth accumulation. Minimize it.
Let’s now discuss real estate.