The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.
We were all children once.
At times, our parents would be brave enough to take us with them to the store and it totally backfired. They tried to keep us away from the toy isles, but when we got a glimpse of one of those “must-have” toys, we began to ask for it repeatedly. We thought of all the reasons why we deserve to have that toy. Perhaps we have been extra good lately, or maybe we would promise to be extremely good in the future. Maybe we could convince mom or dad that this toy was educational and would propel us into a new category of learning. Finally, we tell them that we will forfeit our birthday or Christmas presents for this toy (always a good idea at the time, but doesn’t feel too brilliant when our birthday rolls around…). The bottom line was, we wanted it and simply couldn’t do without it.
From Children to Adults…sort of
Yes, we were all children once, but now we are living in adulthood. We have homes to maintain, bills to pay, and some of us even have children of our own to take care of. Our hairlines are receding and might be getting a little “salty,” but we can all still revert to our childhood selves when the time is right.
Here are a just a few things that bring out the child in us when we see them:
- A new car
- A new boat
- A top of the line golf driver
- A china cabinet
- A new television
- A new purse
- A new dress
Oh boy, when we see these items we know that they are not really needs, but we start devising a reason why it would make sense for us to have them. Perhaps we just got a promotion at work and feel deserving of that executive-looking car. Or, maybe you have stuck to the family budget for an entire month and feel the need for a little bit of a spending spree. After all, your husband did just get that new driver. You deserve it!
That child-like mentality might never leave us, but if we want to be wealthy in the future, we are going to have to learn to suppress those immature feelings. You can’t deny this to be true. Money is finite, which means that life has trade-offs. Every purchase has it’s opportunity costs.
The Mercedes and the Mutual Fund
I recently heard a story that illustrates this concept perfectly:
A salesman decided he was going to work his butt off for a year to hit his income goal of $200k. If he accomplished this, he was going to drive to the Mercedes dealership, hand over his piece of junk car, and buy a brand new $80,000 Mercedes with cash that he saved up from his impressive earnings.
On December 10th, this man hit his earnings goal of $200,000! He was now ready to buy his brand new Mercedes to reward himself for his tireless work. Just like he said he would do, he went to the dealership, pointed at the Mercedes he wanted and simply said, “I want to test-drive that one.”
He took it for a drive and it was everything he thought it would be. The leather seats hugged him close, and the heated steering wheel kept his hands nice and warm during the drive. This car cornered like no car he had ever driven and was falling in love with it. The child inside of him was saying, “This is your car dude. You deserve it. Everyone is going to envy you and you will be the talk of the neighborhood. This is your car.”
He almost handed over the cash, but then the adult in him finally came into the conversation: “$80,000 is a lot of money. You could buy a very dependable used car for much less money, and it will last you for a long time. Think about the opportunity costs. What if you invested this money instead?”
As it turns out, this man did not buy the car. Now, 20 years later. The Mercedes is worth $4,000 and his $80,000 mutual fund has ballooned into $500,000 dollars.
Be sure to listen to the adult in you. What if, instead of buying that item, you invested the money instead? Is this purchase still worth it?
***Photo courtesy of http://www.flickr.com/photos/erin_costa/5941282494/sizes/l/
