Many of us yearns for the latest gadgets that gets us connected to our friends in this new day and age, and we are bombarded every month with new offerings. Some of these gadgets serve a purpose in our lives and some of them do less so for us but perhaps, would for other folks.
As prudent people we chose what will truly add value in our lives and buy less of those that we just want to get because, we just want to get.
And we do the fundamentally sound way of purchase by accumulating cash and using cash to pay.
These assets are at best, life expenses, and unless you are purchasing it for a revenue generating business, is not going to generate revenue. If they do generate revenue, it may be justifiable to use debts through credit card purchases, though it is rather not advisable.
When it comes to sound spending habits, we always make sure we have enough cash before buying the new computer or the new iPhone.
Thus we painstakingly save up over the years just to buy the $1000 computer.
Now I am telling you. That amount is not enough.
Built to break
Modern appliances, computer systems and devices are built with a certain standard lifecycle. Gone are the days where they are build to last a long time.
Even if they last long, some items such as computers and tablets are built as such that the technology and value to you will be obsolete very fast.
This means that you are tied to such hardware service for a long life time:
- Your refrigerator
- Washing machine
- Laptop / Computer
- Rice Cooker
These are some examples.
Your mental model will say, to be prudent I should save up to $X amount to get the device.
However, you fail to realize is that, once you get it, this device will break down in Y number of years.
In business, we view all these stuff as assets that goes into our business and we always plan a replacement cycle. We seldom view our lives as a business. And thus we do not plan that way.
Planning forever replacements with your Zero-based budget
Before you know it, you fail to realize your mental model is flawed about this area.
The right way to view this is that all these assets of yours provide a continuous service that have a monthly cost to them.
You save up for the asset, buy it and while the asset have not break down you save up for the asset until it next break down.
This is prudent in that, when the asset breaks down, this does not seem like a shock to you and you have to tap your emergency fund.
Less shock, a more predictable life.
Things to factor into your plan for this:
- Always have a count of how many devices you have, when is their purchase date and how long they last. A spread sheet is good for this
- Have a Household virtual account that you allocate a sum of money to monthly from your disposable income to fund such purchases
- When things break down, you can tap this Household account to get the money to fund your purchase
Since old things tend to be more expensive than new things, and new things tend to be better than old things but don’t last as long, this should work out.
Your $1000 computer may last 3 years, so you should be saving $28 per month in your Household account for it.
The subtle lesson here is this: If you own too many devices, some which are rather not useful for you, you end up spending a lot of money replacing them. Should that be the case at all? Or should you be thinking harder before you get them?