The Watch Dilemma: A Lesson in Managing Your Money
I got this one from Ric Edelman, my favorite financial guru and planner. If you haven't read his The Truth about Money, make sure you do. Out of the several dozen personal finance books I've read, this one takes the taco.Ric doesn't call it the watch problem. I do.
Here it is.
Say you want to buy yourself a nice watch. You've worked hard, maybe you do deserve that Rolex you saw on Fifth Ave. Problem is you probably won't find the 10 or 15,000 dollars required to purchase it. So you convince yourself a $500 Movado will be fine for now. You'll have to make over $700 dollars in income just to afford it -- taxes suck don't they?
But did you ever think what that $500 dollars could do for you if, say, you threw it into a mutual fund? Holding onto the market's oscillations for 40 years and assuming a 8% return would net you over 10,000 dollars. In the meantime, 40 years later, that Movado will NOT be worth what you paid for it. In other words, it didn't appreciate in value. It'll be junk.
Few things appreciate in value with time -- wine, gold, etc.
So the watch problem is something most people fall in the trap of. Edelman's soultion is to either buy the Rolex -- which will go up in value because of its brand status (and gold lining) or get a $20 dollar Timex and ask your rich friend for the time. Stop dropping hard earned money on depreciating assets and start placing your money in vehicles that grow with time.
Like stocks.
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