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#7 Eliminate Short Term Thinking - The Catalyst for Bankruptcy

getting started six figure guitar teacher Aug 19, 2021
By The Six Figure Guitar Teacher

I just got an ad come up on my Facebook and you’ll never guess what it said:

2021 RAM 1500 Express Crew Cab “Eats Utes For Breakfast”  $394 p/w

I couldn’t help but cringe because I know there are suckers out there that think they are getting a good deal with ads like this. I was going to save talking about purchases like this for a later article but fuck it, the inspiration has struck and we need to get this information out there before more people commit financial suicide by buying into traps like this. (Kudos to the marketing team for Ram though, they’ve nailed it with their target demographic)

Don’t Buy New Cars!
Why the hell would you buy a brand new car? Unless you’re an Uber driver or a taxi company and plan on running that vehicle 100,000km’s a year until the wheels fall off you don’t need anything close to new to get around. The RAM 1500 is an American style pickup toned down to match the Ute style vehicle that is popular here in Australia. It’s 2.6 tonnes, 395 horsepower, $114,000 (for the basic model) with a fuel efficiency of 16L/100KM which is total overkill when it comes to the fact that most people will be driving around in this on their own without any gear in the back.
$1600 per month? What the hell? Why are we thinking of it as if we were renting it? We don’t buy things by thinking about how much they are ‘per month’.
Before I go off on a rant about how silly it is to buy big massive impractical ego cars, let's get back on topic about wasteful spending. There are several ways to think about a purchase. We can lay them out for you bellow in order of least intelligent to most intelligent.
  1. I don’t know or care how much it costs, I want it now and will put it on my credit card to be dealt with later.

  2. $255 a week? I can afford that because my current car payments are $220 and that’s only a few dollars more for a much better vehicle.

  3. $114,000 is the price of this thing? I just so happen to have that much money in my bank account so I’ll buy it outright.

  4. $114,000 is the price they’ve listed for this thing, there will be $7,000 stamp duty, $900 registration, plus a hike to my insurance... so this car actually costs me Over $120,000. If I buy a 5-10 year old second hand Toyota Hilux for $40,000 (I’m not even looking at some of the $20,000 ones) I’ll be saving myself $80,000 straight off the bat. This doesn’t even account for the benefit I would get form putting that money into an investment account over a 10 year period compounding at 7% with world equate to me having an extra $148 THOUSAND DOLLARS In 10 years time!
 
Seriously though, is a RAM 1500 really worth $148,000 more than a 2011-2016 Toyota Hilux? It doesn’t quite seem believable but if we do the maths, it certainly pans out.
As a future Six Figure Guitar Teacher and millionaire to boot, you need to think about every single purchase you make as a long term investment. This means that each decision you weight up in your mind has to extend 10 years into the future rather than your next pay day or credit card statement. Here are a few other great examples:
  • If you and your partner eat out twice a week at a nice restaurant and treat yourself to deserts, a fancy alcoholic drink and a coffee afterwards ($80x2) instead of just having a nice meal and skipping the desert and fancy drinks ($40) we get a difference of $120. Compound this at 7% over a 10 year period and you would have $90,240 in the bank just by reducing how much you spend eating out!

  • If you buy yourself a coffee and a pastry on the way to work every day you have $7.5/day = $37.5/week = $28,200 of coffee and snacks in 10 years.

  • If you buy yourself a new shirt, a pair of shoes, get your hair done at the salon, once a month for a total spendature of $100, you’re going to have spent $17,300 on stuff that just accumulates in you wardrobe or ends up as a ball of hair on the salon floor.
These numbers are quite amazing, so lets take a look at how we calculate them.
  • To calculate a weekly expense compounded over 10 years, multiple the price by 752

  • To calculate a monthly expense compounded over 10 years, multiple the price by 173

Just take a moment to think of 3-5 things you normally spend money on once a week. It could be a chocolate bar or donut you buy from a convenience store. It might be parking a few blocks closers to work so you don’t have to walk, or it might be going out and seeing a movie. Whatever it is, multiple the price by 173 or 752 to see how much it’s really costing you.

Hopefully you’re starting to see that everything you pay for is a thousand times more expensive than the number on the price tag. With this thinking you can see beyond impulsively buying things that catch your eye because you have the money in your bank or will have it covered by your credit card and can instead see everything over a 10 year plan.

If so, congratulations, we’ve cured your short-term thinking, a condition known as Short-Termitis)
*This is the $80,000 I didn’t spend on the car plus the $68,000 of money generated in the investment account)

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