“Why buy the cow when you get the milk for free?”

Monday, August 25th, 2008 by Cass Chappell, CFP®


Clients frequently ask my opinion on the purchase of various luxury items; beach houses, boats, mountain houses, sports cars, muscle cars, even planes.  I try to be consistent with my answer, delicately balancing the fact that this item has likely been a life long dream with the fact that this could be a BAD IDEA.

First, can they afford it?  Most of the time, no.  It is pretty easy to double back to our “sustainable withdrawal ratio” conversation (I like to call it the rule of 22.2 sometimes – at some point this concept will be all over our blog in different posts).  People get so excited at the thought of owning one of the items above.  I know I do.  It just takes some “talking in off the ledge” to help them from making the leap.  I would venture that 8 times out of 10, the client realizes that this just isn’t in the cards for them financially…YET.

Secondly, when they CAN afford it, the conversation changes.  I feel it is my responsibility to play devil’s advocate.  Sure, many of our clients have purchased these items – and been better off for it.  I mean think about it.  A beach house that you spend a lot of time in with your family and friends on vacations.  How great is that!  A boat that you spend the weekends sipping cocktails and enjoying the water (with a designated driver of course!).  These types of purchases can be rewarding and enjoyable. 

I try to get the questioner to stop and think… Are you really considering all the expenses involved?  Are you assuming that you can resell this item for the same, or even more money?  Is that really a valid assumption?  What if you can’t sell it for that much?  Markets change.  Have you considered the budget you will need to accrue for repairs? Gas? Insurance?

I have heard more than one boat owner say, “the best two days I ever had with my boat were the day I bought it and the day I got rid of it”.  Food for thought.

AND FINALLY……….  Can you just rent the thing, any time you want, for a fraction of the cost of ownership, with little to no financial responsibility beyond the rental period?   Most of the time, the answer is YES! 

“Don’t buy the cow when you can get the milk for free (or just a little rent).” 

But hey, it’s fulfilling a dream.  I get it.  I understand it.  I would probably do the same.

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