Cost of your Wants

by Guy Ralfe on December 10, 2009

wants_needMy colleagues and friends laugh at me because I am one of the most fervent petrol heads out there yet the car that I own is a 2000 Ford Focus – for those not in the know, not a car many aspire to. I spend hours trawling the car sites mostly out of pleasure and also wanting to find that sports car that everyone wants for a giveaway price – I am still searching! I have an investment portfolio which I view as the devil of temptation on my shoulder – if I wasn’t concerned for my future, I would pillage it at a moment’s notice and spend it all on cars.

At the bottom of the financial markets collapse my portfolio lost a significant amount of value, to which my story became …”had I placed the money under my pillow and bought a nice car, I would of at least had the car to drive around in and something to show for my loss!” Fortunately the markets have found some fresh air and are making some significant returns which are looking a lot more promising than the depreciation associated with that dream car now, and long term the markets average around 8% growth with a well diversified portfolio.

What I am trying to portray here is the mental fight about what is the right thing to do, be it purchasing products, changing jobs, business decisions,  investing, studying or even moving house. There is a lot of focus on the emotions experienced here and now when making decisions. I have just watched a program called AmericanGreed on CNBC which was a tragic episode of how different women fell for a conman and by living in the moment got seduced and lured in to become accomplices to the crimes being committed, subsequently they have had to server time as a result. These women were both in difficult situations and the sudden appearance of apparent wealth felt like a breath of fresh air and a better future than the troubles they were living in right then. They wanted relief.

If someone stopped them, and asked “you know, what you are doing will get you a minimum of 5 years in prison, do you still want to go ahead?” the answer would have been an emphatic NO!

Right now it is the festive season, we are being peppered with commercials of how much we can save – even my kids can tell me how much I can save if I bought X product from Y store! I want to give you something to think about when considering these offers – if you want something then you are making an emotional choice, if you need something then you better be sure you are using the right grounding when making the assessment. Your decisions today will have a consequence down the road, and you will still be the one dealing with them no matter how big your new year’s party!

To demonstrate this I will use paying off a mortgage as an example. Let’s  take an example of a $200,000.00 mortgage with a fixed interest rate, assuming 6%PA over 30 years, in very simplistic terms this equates to monthly payments of $1,199.10 for 360 months, which means you would have paid $431,676.00 for your $200,00.00 home. If you were able to pay $100 more per month, yes giving up some of those wants, you would only need to make 294 payments (5.5 years less of payments) and your home would have cost you $49,476.00 less to purchase. In today’s terms the same as a year’s income for the average American two person family.

I am portraying this from a very personal view but the exact same applies to business decisions, particularly for the often cash strapped small entrepreneurial enterprise. We all want Santa to sort our problems out, and yes statistically for a few there is a Santa, but as far as we can be concerned he does not exist.

Don’t lose the spirit of the season, but watch out for those wants and desires, the consequences can be a lot more than you expect.

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