In order to justify expensive purchases, many people, including plenty of otherwise very intelligent folks, like to refer to certain types of spending sprees as “investments.” Luckily for me, from the time I was about four years old, my father took any opportunity he could to tell me that anything that loses value after you buy it is not an investment. To pass along a bit of my father’s knowledge and help you be more honest with yourself about your own spending habits, here are some of the purchases I most commonly hear people lie to themselves about by calling them “investments.”
Cars: A car loses value the second you drive it off the lot, and a $50,000 new BMW doesn’t get you to work any more effectively than a $2,000 used Honda. Even if you’re buying an antique that you expect to retain or increase its value, it costs an incredible amount of money to insure and maintain a vehicle — money that you’ll never get back. The only situation where your car might be considered an investment is if it is required for your line of work–and I don’t mean buying a Mercedes because you work in commercial real estate, I mean buying a truck or cargo van for a physical labor job that requires you to haul around a lot of equipment. Even then, you’d be wise to get a used vehicle.
Clothes and shoes: If you buy expensive sneakers, they will not help you become a successful professional basketball player with a multi-million dollar contract. And, unless you work in an appearance-obsessed industry such as fashion, that expensive interview suit is no more likely to land you the job than an inexpensive one. I may not be turning any heads in my $50 polyester interview suit, but I’ve gotten hired about five times while wearing it.
Comic books and collectible toys: Most toys, most of the time, do not go up in value. Even if one toy out of 100 does, it probably won’t go up by very much, and you probably won’t even break even after the expense of the other 99 toys, let alone make a profit from your purchases. Also, the notion that any comic book or toy will become more valuable with the simple passage of time isn’t really true.
The advent of eBay has also driven down the price of collectibles by lifting geographic difficulties on acquiring items. The market is a lot bigger now, and items once considered rare can be easy-to-find online. The most likely outcome of collecting comic books and toys with the hopes of making money one day is that you’ll end up with a closet full of bulging boxes and shelves full of dust-coated figurines. Just ask all the people who lost their wits in the Beanie Baby craze of the late 90’s.
An undergraduate degree from a prestigious university: A college degree is certainly one of the best ways to increase earning potential for many people, but will a degree from a prestigious university really give you greater earning power over the course of your lifetime and make up for its higher cost? This debate will probably never end, but I’d argue that the flexibility and peace of mind that come from graduating debt-free or with a small, manageable amount of debt may outweigh the supposed benefits of having a prestigious name on your diploma and $80,000 in student loans. Private school degrees don’t necessarily carry more weight than public school degrees (in Los Angeles, a degree from the University of Southern California, a private school, is not really looked upon any better than a degree from the public UCLA) and neither degree will have carry any special weight if you move to the East Coast after school. Some of the highest ranked, most expensive private schools in the country actually have no name recognition whatsoever outside of their immediate geographic regions.
Glasses: Yes, glasses are necessary for most people, and they can certainly contribute to your financial success in many ways if you can’t function without them. However, glasses can be purchased cheaply online or at Costco. Don’t justify the purchase of a $300 pair of glasses by calling them an investment.
Computers: A computer is certainly a great thing to have, but these days you can get a basic, very good desktop computer and monitor for $400 and a laptop for $500 if you watch the ads and time your purchase. Unless you are a graphic designer or other professional requiring a specialized computer, don’t tell yourself that the $3000 top-of-the-line model will help you get ahead in life somehow.
Jewelry: Wedding rings, watches and any other type of jewelry is not an investment. While you may want to get a nice one for your partner or for yourself, the fact is that jewelry is extremely difficult to resell. Don’t fool yourself into upgrading because you think it will give you a bigger return in the future because it won’t. Jewelry should be looked at as something that you are going to enjoy and wear yourself, but not as an investment.
Ultimately, there’s nothing wrong with buying any of these things, or even spending a lot of money on them if you can afford it. The important thing is to be honest with yourself about your purchase when thinking about what you really need, why you’re buying it, and how much money you really can afford to spend.