Tuesday, January 20, 1998
Stuff! Stuff! (and
Debt)
by Wendy B G
(Wendy B [email protected])
When I was 29, an electrical short-circuit in my aluminum kitchen ceiling wires started a fire. I awoke with a start at 5:30 AM to the sound of crackling. Was I dreaming? NO! YIKES!! FIRE!!!
After the carnage, most of my possessions were in a giant, splintered heap under my third story one-bedroom apartment window. As part of the aftermath, I made a list of everything destroyed in the apartment (in which I had lived for over 5 years), for insurance reimbursement and tax loss purposes. I was honest in the accounting (I thought that God was angry enough). The replacement cost for everything I had lost came to... $65,000. Holy cow! How was it possible that furniture, towels, clothes, books, jewelry, silverware, etc. could have come to that much? I only had $10,000 in insurance, since any New Yorker expects burglary, but nobody ever seriously expects a fire.
STUFF! STUFF!! Do you have any idea how much you have spent on stuff? Do you ever add it up? How much stuff do you really need? How much is to satisfy an impulse, how much for status and display? How much do you pay for with credit -- a euphemism for debt?
The opportunity cost of stuff is immense. Not only does debt (especially credit card debt) cost a lot (up to 18% per year), but the money is not available to invest and compound. At a conservative 8% compounding per year, stuff bought with credit will cost 26% more than its actual price for every year you carry it on your credit card!
How to cut down on expenditures:
1) Focus on the largest items: your house and car. Buy less house and less car than your perceived status "requires," and that sales people tell you that you "can afford." Maintain them carefully, to maintain their value. Take pride in maintaining your car so well that it lasts for 200,000 miles. Life without a mortgage and car payments does wonders for cash flow.
2) Don't buy for status and display. Buy for function. Just say "No" to expensive designer labels. Buy at discount stores and sales. Don't take the kids shopping as an amusement. It will teach them materialism.
3) Repair and use things for as long as possible. Don't buy duplicates of things you already have. Fix them as long as possible. Learn to do your own maintenance.
4) Buy yourself one "treat" per year. The treat should be something you really want (a new computer, collectible, piece of jewelry), but not something that will significantly dent your savings. When that shopping bug bites, comparison shop for your treat, but don't buy until the year is up, and don't buy more than one treat per year.
Think of the long term, and resist the urge to accumulate more STUFF!
[For more on how to handle debt Foolishly, visit our new Credit Area in the Fool's School.]
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