fbpx

Financial Independence—Borrowing From Yourself

Posted on

Use Your Savings Without Spending It

We all love toys. Whether its a motorcycle, boat, or an RV, everyone has a weakness for something. Some of us are suckers for all of them. The thing about toys is that they all come with a price tag. Are horses your weakness? Well, they need a place to stay, food, vet care, and the list goes on. How about motorhomes? Now we are talking about insurance, registration, fuel, tires, batteries, etc. There is nothing wrong with liking toys, but we don’t want to let the cost of them exceed our ability to pay. Toys depreciate, but at different rates. A brand new boat will lose a ton of value the moment you take ownership, but a rare ’65 Mustang? That is likely to grow in value as time goes on, though maybe not necessarily at a higher rate than it cost you to maintain.

One of my biggest weaknesses is motorcycles. I love them. I typically get a different bike every year. There are times when I’ve had up to nine bikes in my garage. Although I’ve paid a lot of money on bikes over the years, I’ve actually spent very little. That is because I am very careful when I buy and am usually able to sell it for what I paid for it when I am ready to part with it. I always buy my bikes used, at a fraction of what they cost new. Most of the time, the bikes I buy have thousands of dollars of “farkles” added at the previous owner’s expense—things like crash bars, after-market seat, performance air cleaner, GPS, and a backrest all add to the cost of purchase, but actually, add very little to the resale value of the bike.

I also buy my bikes during the winter, when they command the lowest price. I then sell them early enough in the autumn that the next owner is able to enjoy them before winter comes. It may cost me a small window of riding opportunity, but by letting the next guy enjoy part of the season, I am selling when people are still looking to buy.

There are many ways to save on the purchase so that the total experience costs very little. To illustrate, let’s break down a sailing trip I took and see what it cost.Our oldest son had already flown from the nest and we knew our clock was ticking with the remaining boy. He was seventeen going on twenty, and we knew it wouldn’t be long before he too, left in search of his own way. We wanted to do something with him that we could look back on fondly, and that we would all enjoy. We homeschooled our boys, so time wasn’t an issue. As part of my son’s economics class, we did an exercise on how to use money without spending it, so I’ll share it here.

First, my wife and I knew we wanted to do something, but we weren’t sure what. We had already done a two-month motorcycle tour, so we were looking for something else. We finally narrowed it down to either buying a boat and touring the East coast, or buying an old VW van and doing a road trip. With these two choices in mind, we began our search. We were looking first for something that was available for less than a market price. We wanted to teach our son that the money is made on the buy, not the sell. No matter what the toy is, it will only sell for what the market will bear, so if you want to save money, you need to buy your toys for less than they are worth. There are multiple ways to do that.

In the case of the boat, we purchased a 25’ Bayfield from Madison WI. Why Madison? It could have been anywhere, but a Bayfield is a bluewater boat, and we didn’t want to find one where it would be most valuable. In our case, the boat was like a duck out of water in Madison. The previous owner completely refit it for extended cruising. Everything was redone. It was ready for cruising and was attractively priced. It should have sold immediately. The problem was that it was in the wrong location. There is no open water in Madison. Given its odd location for such a boat, it was selling at a discount to what it would sell for if it was on one of the Great Lakes or an ocean. In addition to being in the wrong location, it was late in the season. The seller was faced with having to store the boat for yet another winter, or drop the price and sell it. Luckily for us, he decided on the latter.

Tulia as she sat in a field in Madison WI. After unsuccessfully attempting to sell it, they had dropped the price to $15,000, which we were able to negotiate lower.
Tulia as she sat in a field in Madison WI. After unsuccessfully attempting to sell it, they had dropped the price to $15,000, which we were able to negotiate lower.

After much negotiation, we were able to purchase the boat for only $13,000. That included a trailer that was almost worth that much on its own. Our friend was heading south for the winter and didn’t mind pulling the boat behind his motorhome to Portsmouth VA, so we could begin our cruise at the beginning of the Intracoastal Waterway.

Tulia being trailered to Mile Marker 0 of the Intracoastal.
Tulia being trailered to Mile Marker 0 of the Intracoastal.

After a lovely two month cruise down the Intracoastal, we put some pictures of our cruise on Craigslist and offered her for sale. We sold the boat to the first interested party for $500 more than we paid for it. The new buyer was ecstatic at the deal he was getting and we were happy not to have to hold onto the boat and try to sell it after we had left it behind. So what did the trip cost us? Very little, considering.

My son relaxing on Tulia as she sits in the water.
My son relaxing on Tulia as she sits in the water.

We tied up a small amount of money with the initial purchase, spent a few bucks on some minor updates, and sold it for very close to the total amount we had spent on it. This is a good example of using your money instead of spending it. Now consider the previous seller, who presumably paid more than we did to buy the boat, and then put thousands of dollars into refitting it for extended cruising. Unfortunately for the previous owner, poor health got him before he was able to use the boat, and his family was forced to sell. The previous owner, and whoever had originally bought it new, had lost thousands of dollars on the same boat that cost us almost nothing. And presumably hadn’t even had an extended cruise in it.

But that is a unique situation that won’t happen again, I can hear you say. Not so. I can give you more examples. I also bought a $775,000 Bluebird Wanderlodge motorhome for $50,000. The original owner paid $775K, took meticulous care of it and always stored it indoors. Anyone who has owned a new RV knows that there are always some initial bugs that need to be worked out, so by buying used from a fussy owner, I arguably had a better motorhome than when it was new because all of those bugs had long been worked out of it. Since I had been searching for a Wanderlodge, I came to look at it well prepared. The owner wanted to get $100,000 for it. I really wanted the machine. I had already looked at one and we couldn’t agree on a price, so I didn’t want to see another one slip by. Luckily for me, the owner was older and no longer able to use it. He was more interested in seeing it go to a good home than in getting top dollar for it. I praised his machine, complimented him on the great care he gave it, and then explained my budget for a motorhome was only $50,000. He blinked, and I left thinking another one was going to slip away. The next day, he called me and said he thought about it and wants me to have it, since he knows I’ll care for it. I showed up, paid the $50,000, and drove away.

My Wanderlodge. Current market value approximately $75,000. Paid $50,000. Pulling a 2016 F-150 with a Salvage title that I paid half of the price of a new one.
My Wanderlodge. Current market value approximately $75,000. Paid $50,000. Pulling a 2016 F-150 with a Salvage title that I paid half of the price of a new one.

We have thoroughly enjoyed it and it has been trouble-free for three years now. After three years of heavy use, I could sell it for more than I paid for it. Throw in the cost of routine maintenance, licensing, insurance, etc, and I could probably break even. But, I got the use of a high end, high-quality motorhome for three years! I’ve driven it through the western states as I visited MT, CO, ID, SD, and ND. I’ve done several trips in the midwest with it. In one week, I will be doing an East Coast tour with it. The point is, I’ve put thousands of trouble free miles on it at very little, if any permanent cost.

Now consider the previous owner. He paid $775,000, and his experience cost him $725,000 plus repairs, maintenance, etc. Fortunately he did travel quite a bit with it, but one of us paid dearly for the experience, and the other will pay almost nothing for the same experience.

This style of buying also works on motorcycles and sports cars. I bought four different motorcycles for a two-month family trip around the western USA. After my family put 10,000 miles on the bikes, I sold all but one of them for more than I paid. I bought them during the winter when nobody wanted a motorcycle and sold them in late summer when the riding season was still in full swing.

These bikes were purchased used, at discounts to full market value.
These bikes were purchased used, at discounts to full market value.

There are numerous examples of using your money instead of spending your money. All it takes is a little imagination, minor compromises, and you too can experience the joy of toys without the cost associated with them.



Wanderer Financial