“Why did Crusoe take the coins off the ship?”
Robinson Crusoe is the story of a man that was ship-wrecked on an island, alone, for years. When he first swam to the island he built a raft to transport as many goods as he could from the wrecked ship back to the island. After several days of getting the necessary food, clothes and tools, he came across a chest of gold coins. At first knowing they were useless, he decided to leave them to sink. On second thought, he brought them along. Why?
I think there are two potential reasons, the first of which is the most improbable; the second of which I think is the true reason.
Crusoe may have taken them off the ship because Continue reading
“Why shouldn’t I borrow to buy something that depreciates?”
When you get a loan, you borrow ‘x’ amount of dollars. You must then pay back ‘y’ dollars in interest, as well. So, you’ll be paying back more money to the lender than you originally borrowed.
Now you get a loan and buy a nice new couch. As you use it, it gets worn, discolored, etc…. Now, ten years later, your couch is no longer as valuable as it was ten years ago—it depreciated. So you’re paying off a loan, with interest, and your item has depreciated in value and you can no longer sell it to get some money back.
On the other hand, if you buy something like a house on a loan, it is worth it. Houses typically don’t depreciate in value, depending on the economy and market. You could buy a house (with a loan) for $200,000, fix it up and make it worth more than before, and then re-sell it for a profit. Now, you have made money on your “investment” and your loan was not a waste. You made a profit, using the loan, instead of having to pay more.
Typically, borrowing to buy an item that can depreciate in value is not a good idea. Sometimes, though, you may not have a choice. Sometimes, that item is so important to you that you don’t care about having to pay off the loan. Spending and managing your finances is all about choices.
Ever since I got a job last year, I have learned to manage my finances. I always loved to spend all my money, whereas my sister always saved hers. You can imagine how happy I was when she could buy that new game and I didn’t have a cent! With my job came the valuable knowledge that money doesn’t just grow on trees. You have to work hard for it. Now, although I do spend quite a bit of my money on stuff I like, I save a lot of it too, because I value it.
Over the summer I saved about $1,000 to make two large purchases. I had to stop buying a few things, but when I remembered what I would get at the end, I gladly stopped spending so much.
I think that saving without a specific goal is not good, because it makes you wonder why you don’t just spend all your money. Whether that goal is an emergency fund, college, a car, a vacation, stuff for your kids, or gifts, you have to have a goal so that you feel that you’re achieving something by saving.
Knowing how to manage your finances is a great big step towards a successful life.