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Getting organized through financial planning is a great way to build wealth in your 20s. Setting up some easy money saving habits is a must!
Seeing exactly how saving money adds up can be hard to envision.
In this post, I’m sharing how much buying new affects financial planning. Self-made millionaires have used what I’m about to share with you to retire early and reach financial independence.
And the best part is anyone can use these tips to reach their financial goals.
Heads up: This page may contain affiliate links. You can check out my disclosures for more details.
Buying new: Financial planning case study
The proverbial Joneses make an average household salary in the United States of $59,039.
While costs vary between families, this family spends $8,000 on new purchases throughout the year.
Their hard-earned dollars afford new clothing, appliances, household products, and kids toys among other items.
Bought separately, the costs range from $1 to over $200. Because these individual buys are small, the purchases go unnoticed in the family’s budget.
How much can a family save if they opt for buying used whenever possible?
Our proverbial family hasn’t met Elizabeth or Pete yet, though. 😉
What the Joneses bought is commonly for sale on Craigslist or Facebook Marketplace as seen below.
After spending that $8,000 by buying new, the family decides to sell what they bought.
They don’t like it for whatever reason.
- Trends changed.
- They decide to go on a shopping ban.
- The purchases weren’t used regularly enough.
- The jeans no longer fit.
The market in their area will only buy back the now used items for around 20% of what they bought.
This can vary depending on the condition and brands of the used products. For simplicity, we’ll use 20%.
The family’s hard earned $8,000 vanishes into $1,600. Ouch.
The family lost $6,400 in one year by buying new.
At an 80% depreciation rate, this gets really expensive.
Crazy enough, some families pay 80%+ depreciation every year for the luxury of buying new.
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How can the Joneses make a better financial plan?
1. Evaluate stuff depreciation
To avoid losing so much cash as in the example, it’s a good idea to track how many items you’re buying new versus used.
Develop a list of items that you can buy used and consider looking there first before buying something new.
A list to get you started is:
- Pet supplies
- Kids toys
As a smart consumer it’s easy to be a tightwad on cars because of the famous depreciation rates.
Small everyday purchases? These are more easily hidden in the budget.
Early retiree, Jacob Fisker, shares information in his post on the costs of new clothing depreciation. It’s compelling.
If you shop at a consignment store, you can save massive amounts of cash by avoiding depreciation from the start.
Buying a gently used shirt for $6 could cost over $30 elsewhere. That’s an 80% depreciation rate you’re avoiding just by buying used.
With some everyday items depreciating between 50-100%, some cars hold their value better, at least from the car depreciation rates cited in the article from Pocket Sense.
2. Try cynicism with marketing
If you believe the marketing, it will tell you that you’re saving money by buying new because you’re not going to those designer stores.
This tells one part of the story.
Sure, you would save money if you didn’t buy a thousand dollar handbag and instead bought one from a last season type store.
What the marketing won’t say is you can save even more by trying thrift stores first.
Consignment shops, thrift stores, and reseller websites selling gently used items help avoid the crazy depreciation rates too many consumers pay every day.
You can even find some name-brand items that look just as new as what you’d find in malls.
3. Find good used buys
What makes a good buy over a bad one?
Here are some tips to get you started:
- Buy only products that you truly need. It’s not a deal if you don’t need it, ya know?!
- Plan what you need to buy within the next year to look out for used versions that will fit your needs.
- Create free Facebook Marketplace alerts. They will send you a note when a product you’re looking for is available used.
- Pay attention to how long something is for sale. If it’s been for sale for a while, you might be able to get it for a lower price.
- Research the product you’re buying and know what it costs new.
- Don’t be afraid to negotiate. The Instapot example is only 35% less than what it costs new online. Use that info to your negotiating advantage.
4. Invest your savings
If the proverbial Joneses decide to take control of their financial situation, they can make huge gains without much effort.
If the family buys used and saves their $6,400 by avoiding stuff depreciation, they can invest that money how they please.
In a stock market example, the results are stunning.
With the one habit change and investing just $6,400 each year could yield a future value after taxes and inflation of
- $41,268 after 5 years
- $82,030 after 10 years
- $191,405 after 20 years
- $640,745 after 40 years
Growth over 40 years
One habit could turn into $640,000 in your pocket.
Saver’s Tip: You can run scenarios like this in the best money app on the planet, Personal Capital.
This is why it’s no surprise Frugalwoods and Mr. Money Mustache retired early.
Buying used may not be the most exciting purchase ever, but is it worth losing $640,000?
Only you can answer that.
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Do you buy used? Did this post motivate you in any way? What are your favorite thrifty buys?
*18.53% combined average tax rate is based on Colorado’s taxes. Results may not reflect your exact situation.