# Getting Started #3 – Eliminate Short-Termitis, the Bankruptcy Disease

## By Mr. Money Mustache

## Sat, 16 Apr 2011 03:15:29 +0000

No SUV Required

I just saw one of those automatically generated text ads at the top of my Gmail account. Here’s what it said:

2011 Pilot 4WD LX $319/mo

(note: this article was first published in April 2011 but you can substitute the current year whenever you read it.)

It gave me shivers to look at it, just because it is advertising a purchase that is so wrong on so many levels. We’ll get into all of those levels in future postings, but… no, fuck it, let’s talk about this particular piece of financial suicide right now.

- The model year. Why the hell would you buy a brand new car? Unless you’re a taxi company and you are going to systematically run that vehicle 60,000 miles per year until it evaporates at a million miles, you don’t need anything close to a brand new car to get around.
- Honda Pilot. A ridiculous truck from a great car company. 4500 pounds, 250 horsepower, 31 thousand dollars, all so you can carry usually-one-person on a paved road at 23 MPG.. 4 MPG worse than my work truck (a borrowed 1984 Nissan pickup) gets.
- $319/month. What!? Are we renting the truck here? We don’t buy things by thinking about how much they are “per month”.

And that brings us back to being on topic for today’s post. There are several ways to think about a purchase. We can list them here in order of increasing intelligence.

1. I just want it and I don’t know how much it costs – put it on my credit card and I’ll deal with it later.
2. $319 per month? I think I could afford that because I’m already paying $299/month on my current car and that’s only 20 bucks more.
3. $31,000 is the price of the Honda Pilot? I do have $32,000 in the bank so I guess I’ll buy it.
4. $31,000 list price, plus $2400 sales tax, $1600 registration equals about $35 grand. If I buy a 2002 Honda Odyssey for $6000, which is the same vehicle in a more practical minivan body, I save $29,000. Over a ten year period, that money will compound at 7%, saving me a total of $57 THOUSAND DOLLARS!

Wow, is a 2011 Honda Pilot really worth $57,000 more than a 2002 Honda Odyssey?

As a future young millionaire, you need to start thinking about all of your purchases as LONG-TERM events, not short-term ones. That means each decision should be carried forward in your mind for at least 10 years, rather than just until your next paycheck. Here are a few more fun examples.

- A deserving couple eating out at a restaurant twice a week, with wine, dessert, and coffee ($75), versus once a week with just a nice meal ($40): A difference of $110/week, compounded at 7% for ten years is $82,756. Would you rather have a luxuriously soft flabby physique from 1040 restaurant meals, or a leaner one and $82,756 in the bank?
- A Starbucks habit of picking up a regular coffee and biscotti on the way to work each workday. $4/day = $20/week = $15,040 in coffee over just ten years!!
- A new pair of shoes, or a few necessities from target, or a professional haircut.. once a month, for a total of $100. $17300 of handbags and closet organizers and hair clippings in ten years!

Now that you are amazed by the numbers, here is the simple formula for you to apply yourself.

- to calculate a weekly expense compounded over ten years, multiply the price by 752
- for a monthly expense, multiply by 173

.

You can fiddle around with the “future value calculator” at calculatorsoup.com for other interest rates and payment amounts.

See? Everything costs a thousand times more than the price tag you see, Now you don’t want something just because your next paycheck will cover it. You want those big sums in bold above much more, right?

Good. We have now cured your case of Short-Termitis.