Reduction in material quality, craftsmanship, and of course, labor rates has super-charged almost all durable goods – making them readily available and extremely affordable. As a result, we’ve grown out of the smaller disposable items like diapers and napkins into larger products like toasters and microwaves.
Hard to believe for $10 you can buy a toaster. For that small cost, it’s not “worth” the time to fix a broken one and instead we default to buying new, allowing the product to become disposable. Once that happens it’s near impossible to realize the product’s full potential. We’re constantly replacing the item before we squeeze out all of its usefulness.
And think about cell phones. The cost of a new battery for an old phone generally outweighs the cost of a new phone. And if you’re phone is much more than 2 years old, you may even have difficulty finding the parts if you decide to try.
When we know things can be replaced, we tend to stop taking care of what we have. As we lose that vigor in maintaining our goods, our rate of disposal accelerates and we end up needing to replace more and more often. But this has been the exact marketing strategy of many businesses as Giles Slade talks about in his book, Made To Break.
All of this leads away from a very important concept – preservation.
When we aren’t preserving what we have, we lose sense of its value. And here’s where it translates into personal finance. Interestingly enough, we refer to our take-home pay as disposable income – one’s personal income less their personal taxes. Yet we don’t talk about wealth preservation until someone is nearing retirement.
Like with cheap cell phones, we become accustomed to discarding what we see as replaceable. Being paid on a bi-monthly basis provides that same sense of recurrence. Instead of concerning ourselves with preserving what we’ve already received, we spend it frivolously knowing it will be replaced in another 2 weeks.
Think of it this way – how differently would you manage your take-home pay if it was given on an annual, lump-sum basis?
Keep in mind that this is different from saving. Saving is an action, preservation is a mindset. You can save money than just as easily spend it, whereas through preservation you are always trying to stretch those dollars in all aspects of saving and spending. Of course, this becomes the basis of optimization.
Preservation through saving considers a collection of factors, primarily: anticipated return, expected risk, and known fees. This is why investors look at the efficient frontier (risk vs. return) or wait to sell profitable investments to avoid short term capital gains. And why retirees look towards income producing products like bonds, CD ladders, and blue-chip dividend aristocrats or avoid products with a host of costs in order to maintain their wealth.
Preservation through spending comes from many different directions. It could be as basic as reducing your purchase costs by negotiating the best possible deals or it could be in how much you are willing to spend, in terms of time or money, for maintaining & servicing your already purchased items.
Often things we tend to neglect, something as simple as vacuuming the air conditioner or refrigerator cooling coils will go a long way towards extending their lifespan. Or more often, disconnects seem to exist between the purchase price and maintenance costs, so we forgo the service to save a few bucks now only to pay far more in the future.
Ultimately it won’t matter how much money we make or how little we spend. It will boil down to how well we preserve whatever it is that we do have.
So how do you treat your goods? Are you vigilant about keeping things in top condition and embody the “well-oiled machine” saying? Now look at your finances, can you see the similarities? Do you apply the same principles and work to maintain everything as best you can?