Element 4.5: Spend Strategically

“Let us not be too particular; it is better to have old secondhand diamonds than none at all.”

Most of us would like to have more in the future without having to give up much today. Many people, including those with incomes well above average, do two things that undermine this objective. First, as we saw in the previous element, they go into debt to buy things before they can afford them. Second, they on buy items before carefully considering alternatives.

As we saw in Element 4.3 on budgeting, make sure your purchases are within your budget. Ask yourself the following questions before buying. Is this purchase taking me toward or away from my goals? What will my life be like with the purchase? What would it be like without it? Is this a need or a want? Am I simply replacing an item I already have that is still usable, or am I obtaining something new? Are there any alternatives? Your goal should be to get the most value for your money.

You can stretch your money by buying used items when they will serve you almost as well as new ones. The problem with buying things new is that they depreciate or decline in value almost immediately. Almost as soon as an item is purchased, it becomes “used” in terms of market value. Buying things that are used—or, in today’s parlance, “pre-owned"—can lead to substantial savings. Consider the cost of purchasing a new automobile compared with a used one. Figures vary a great deal across local markets but a general rule of thumb is that the per-kilometer depreciation in the first year or two after a new car is purchased averages well over twice as much as during the rest of its life. We calculated that each kilometer driven lowers the value of a 2024 Toyota Camry by about US$ 0.23, but as he car gets older this depreciation falls to just a few pennies a kilometer. Given how long cars last, if you take care of them, by buying a used car and letting someone else pay the high depreciation in the first few years you should easily be able to get excellent service from that used car for many years., saving thousands of dollars in depreciation. Of course, your repair bills may be somewhat higher after the car is a few years old, you will still be well ahead financially. maybe enough to pay for your daughter’s college education! That is an awful lot to pay for the status of driving a brand new car.⁽¹³⁴⁾

Many other items are just as functional used as new and often much less expensive. Clothes, furniture, appliances, refurbished phones, and toys come immediately to mind. You may want to spend some time at secondhand stores and markets but given the value of your time, looking online may be very productive. US giant e-Bay claims to be active in over 190 countries, so unless you live in Cuba, Iran or North Korea this global peer-to-peer market place is open to you. Similar websites exist in almost every country, without the global shipping costs. In a few clicks you can find items that are both in excellent condition and priced significantly below retail. For example, there may be a retailer who sells appliances or furniture that have cosmetic imperfections, like a small dent in a refrigerator door meaning that it cannot be sold for the full retail price but is otherwise brand new.

Of course, there are some cases when buying new is economical. There are retailers, especially for clothing, that buy up last season’s clothing and sell it at a deep discount. If you do not need to wear the absolute latest fashions, these discount outlets can save you a great deal of money that you can then use for other purposes. We are merely encouraging you to consider the potential savings that can often be derived from used or discounted purchases without giving up much in terms of consumer satisfaction. Look for opportunities to get the most value from your money.