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Sometimes, Luxury is the Most Financially Sound Option

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[Today's article comes from a new author, Megan Sullivan. She's got a different perspective on personal finance, that I don't necessary subscribe to, but I thought it was worth exploring. It's probably because I've got two small kids, but I'd certainly value a couple of trips to Applebee's. You'll see what I mean in the article below.]

What makes something affordable? Is it really only a matter of the price tag? You might think so at first glance. But closer inspection reveals a more nuanced truth. If I offered you a used Yugo for $10,000, you might balk at the idea, and rightfully so, as the best of them didn’t cost that much when they were new, and actually being made. Whatever stock there is remaining has certainly not gone up in value. But what if I offered you a brand new Mercedes fresh out of the factory for that same $10,000? Suddenly, it is the most affordable thing you’ve ever heard of. What changed?

Affordability, cost effectiveness, and financial soundness (whatever term you prefer) are all relative. In a vacuum with nothing else available for comparison, those concepts are meaningless. So if you find yourself looking to make a big-ticket purchase, regardless of what you might have heard, there are times when the luxury item is the more financially sound decision. Here are a few factors to consider:

How Long Will It Last?

Back in 2006, nbcnews.com did a report on the life expectancy of the average automobile. Based on data from Consumer Reports, it was about 8 years. That is not particularly impressive when measured against the fact that 1995 Mercedes Benz parts are still being bought on aftermarket sites by happy owners of a 20 year-old vehicle. With reasonable upkeep, those cars are still going strong, with no signs of stopping.

In financial terms, what is a financially sound amount of money to spend on a car? A big part of the answer is dependent on how long you plan to keep it. If you are going to turn it over every two to five years, you should probably think about leasing. If you plan to keep it for a long time, and even pass it down to your kids, a luxury car that is built to last could make a lot more sense.

How Important Is the Experience of Using the Product to You?

Sticking with cars, do you consider driving a utilitarian function, or is it an experience worth savoring? If you are the type of person who only cares about getting from point A to point B, then utility is all that matters. You are unlikely to place a very high premium on experience. However, if the drive is more important than the destination, you may be willing to accept less utility for a greater overall experience.

Safely getting from point A to point B is a necessity. Any experience above that is a luxury. Perhaps that experience you seek is sudden acceleration, raw speed, or race-track performance. Those are still luxuries just as much as heated leather seats, mahogany accents, and foot-massaging floor mats.

If those are the experiences you desire, then you don’t save any money by purchasing something without those features. You will not be happy with your purchase. You might even buy a bunch of expensive, aftermarket modifications to try to get what you should have bought in the first place. There is no substitute for experience.

Does It Scratch the Itch?

How much anxiety and dissatisfaction are you willing to put up with over not getting what you really wanted? When a company offers an inferior product at a steep discount such as two for the price of one, they are hoping to make up for in volume, what they cannot offer in ultimate satisfaction. You don’t want two meals at Applebee’s. You want one great meal at Ruth’s Chris. You don’t want two Blackberry phones. You want one iPhone. You don’t want two Chromebooks. You want one MacBook Pro.

Accumulating a bunch of “reasonably priced” items that you don’t want is not nearly as efficient as getting the one thing that will satisfy you in the first place. The same is true for allowing price to trump experience and longevity. When it comes to making the most financially sound decision, sometimes the luxury item is the better deal.

Last updated on February 3, 2015.

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7 Responses to “Sometimes, Luxury is the Most Financially Sound Option”

  1. I too am a proponent for buying quality items that’ll last, when it makes sense to do so. Most of my belongings were bought used, but there are exceptions for quality–such as glass tupperware and good winter boots.

    However, I find that I usually don’t need to buy top-of-the line in order to achieve high-quality. There are plenty of mid-priced items that do a great job. For example, we have a 1996 Honda Odyssey that’s still chugging along just great. It cost far less than a 1995 Mercedes, but it’s a great car that’s outlasted many other brands. So, on the whole, I think there’s a balance to strike.

    Thanks for these thoughts!

    • Lazy Man says:

      That’s usually my thinking as well Mrs. Frugalwoods. On he other ends of the spectrum, I had an old history teacher that would buy junker cars and run them into the ground for a year or two. Since he only paid a several hundred for them in the first place, he almost always came out ahead.

      I also think there’s a place for Chromebooks over MacBooks… it just depends on what your computer needs are.

  2. Big-D says:

    I think it has to do with needs vs. wants. You need good transportation, you need good clothes for work, etc. However lots of things you mentioned are wants. I want a restaurant trip, I want a laptop, I want a smart phone.

    With Needs, you always want to buy the best, most quality item that suits your requirements, for the cheapest price. For wants, you have to determine why you want it, and then find an item that matches it, then get it for the cheapest price.

    I find lots of things mentioned above are not interchangeable, they match different needs/wants. MacBooks are not interchangeable with normal windows laptops. iPhones are not interchangeable with Blackberries.

    My final thought on quality, is that if you buy something, anything, it should be able to be fixed (if not catastrophically destroyed by mistake, like dropping a phone into a lake). Laptops can get new screens, new keyboards, new batteries and make them a last a lot longer. Phones can be refreshed with an OS reload (unless it is apple). That is where the benefit comes in from “quality” items. Not necessarily they are the best in terms of not breaking, but that they can be fixed.

  3. Big-D says:

    Oh yeah .. one more thing. You mentioned the parts for 20 year old cars .. well BMW had better as it is law. BMW, by mandate from the DOT, must have 1 spare part, for every part, for every car for at least 20 years. That means that if BMW sold 25,000 3 series sedans in 1995, they must have the spare parts to make a total of 25,000 complete new cars completely from spare parts.

    This is every car manufacturer that sells a car in the US. They are subject to huge fines if they are found to be deficient in this area.

  4. I agree with Big-D. I didn’t know the specifics he cited, but I read your quote about parts and thought, “Yeah, but spare parts don’t necessarily have a 1:1 with demand.”

    I agree that there are luxury cars that are made to last. Then again, so is the Honda Civic we bought (used) this year. Several of my readers have been driving their Civics for a decade or more. I think one actually had a 15 year old one.

    You’re right that it is important to buy quality rather than buy the same item over and over again. But I think you’re leaning a little too hard on the idea that anything other than top of the line necessarily equates to the highest quality.

    It seems like this is all a bit of a rationalization. No one needs to rationalize a purchase unless it’s a hardship on the budget.

    If you want to buy a BMW, then by all means save up for a BMW til it’s feasible for your budget.

    As several PF bloggers say, frugality isn’t necessarily about deprivation/the cheapest items possible. It’s about saving where you can so you can spend where you want.

  5. robyn says:

    i have a 30 year old top of the line kitchen aid stand mixer, 5 qt. it works perfectly. in the same 30 years, i have gone through 20 junk mixers in my summer homes, apartments, traveling. the junk mixers cost $8-12 each. the kitchen aid cost $225. works out about equal dollarwise but the kitchen aid WORKS, while the other are only good for pancake batter [if that] for an avid baker, it makes a world of difference.

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