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.

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.

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

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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.