I went shopping this weekend to buy myself a new pair of comfortable brown leather loafers for work. I’ve worn my $60 Timberland loafers from Shoe Pavilion (discount store) for the past two years, and they are starting to get holes. I have to say, when it comes time to shop for work clothes, I’m just so uninterested. To me, shopping for work clothes becomes a “work expense” I resent. Because dressing reasonably professionally is a necessity at work, I feel I’m not spending my money on what I want, and that annoys me. My ideal outfit, after all, is a t-shirt, a well worn pair of jeans and flip flops.
I decided I wasn’t going to buy the same old boring shoes anymore. I was on a shoe revolt! Instead of going to DSW Shoe Company or Ross Dress For Less, I went to Barney’s New York to buy a $435 pair of Tod’s loafers (see picture)! I’ve actually been eyeing this shoe for more than two years, and just couldn’t find my size when it went on sale for “only” $250 last Christmas. It’s a good looking shoe, with beautiful leather and a nice rubber sole. However, there’s no way in heck it’s worth $435, or 5X what I’d normally pay for shoes. That said, I bought it anyway, because I wanted to enjoy the shoe, at least temporarily before I see the charge come up on my credit card bill online.
I’ve really spent $0 dollars, b/c the credit card is a wonderful tool to temporarily borrow something without any cash outlay. Where people seem to get in trouble is when they actually keep the item, go figure. Barney’s has a 30 day return policy, and I expect to tempt myself for at least a couple weeks before I wake up, smack myself and realize that $435 is just an absolutely ridiculous sum of money to spend on loafers. I’m just being lazy, and not searching cheaper stores for equally attractive shoes. In the meantime, I’m going to enjoy these loafers to my heart’s content.
My system of resisting the urge to splurge is quite simple:
1) Splurge on things if you really want it, but make sure there is a return policy and that you understand the terms! The initial point of purchase is generally the highest point of euphoria, especially when not paying cash. The euphoria tends to fade over time, and the dread mounts when the bill comes due. If there was a return policy on cars, I’d be all over it! But, as my wife always says when i’m about to buy a new car, “There’s no return policy!”
2) Enjoy the item for the life of the return policy minus 1 day. You need to enjoy the good for as long as possible to rid yourself of the desire for that good. Return it one day before it’s due at the latest, b/c you may forget, or the store may try and manipulate you into not being able to return the good.
3) Take the cost of the item and multiply it by 130% to get the pre-tax income you need to make/spend. Take this pre-tax income and divide it by your hourly wage to figure out how many hours you need to work to buy that good. The first exercise is generally enough to make me not buy anything wasteful. It’s the second item that really pushes me over the edge.
4) Remind yourself never to pay full retail. The reason why luxury goods manufacturer LVMH has 90% gross margins, is because they charge customer 9X their manufacturing cost. Try your hardest to find a similar good at a much cheaper price during your “borrowing period.” Make it an adventure in savings if you will.
5) Finally, take a look at that credit card bill on-line and tell yourself how good it’ll feel not having to pay such debt and return the darn thing! The reward for not splurging is the cash/savings that remains in your bank account! Think about the lost investment returns you’ll be missing, and remind yourself that the money you spent is less money you’ll have for achieving early retirement.
After all these defenses, there are some things in life you just have to have, such as that fine Rolex watch you’ve waited 10 years for ever since graduation. Whatever the case may be, I firmly believe one should be able to treat oneself within reason. For a car, my limit is spending no more than 1/10th my gross income. It’s just when you want to have that 2nd watch, that 5th pair of jeans, or third LV handbag where things start spiraling out of control. I think you’ll have fun resisting the urge to splurge with the 5 defenses above because you’re actually getting to enjoy the item without having to buy it. Don’t ever feel guilty returning an item. It is your right, and your early retirement prerogative!
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Financial Samurai – “Slicing Through Money’s Mysteries”
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