This page may contain affiliate links. Please read my disclosures for more info.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 studyThe 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? As early retirees, Frugalwoods and Mr. Money Mustache thoroughly describe the benefits of thrift in their respective blogs. 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.
1. Evaluate stuff depreciationTo 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
2. Try cynicism with marketingIf 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. Related: How we’ve paid off over $51,000 of our mortgage (and you can, too!)
3. Find good used buysWhat 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 savingsIf 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. I calculated the numbers with this future value calculator using a 10% annual interest rate, 18.53%* combined average tax rate, and adjusted the numbers with a 3% inflation rate. 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 yearsOne 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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