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Have you ever thought that some
particular purchase would save you money. I often hear people
talk about how they can save money by purchasing something that
will save them in other ways. A good example of this is a home
theater system. Many of my movie buff friends, awed by snazzy
displays in electronics stores have convinced themselves that
there is no cost in this type of purchase. |
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After all, it is difficult to
find a first run movie theater that sells tickets for less than
$6.50 each and many are substantially more. Surely, they reason,
at say $8.00 per ticket, they would save money purchasing this
system that attempts to approximate the theater experience. Is
this really the case?
One particular friend purchased
his system in stages. First he purchased the large screen television
for a cost of around $2000. Then he purchased a mid range stereo
system including a DVD player for another $2000. For these prices,
surely the stereo would include speakers, but says my friend,
that is not the case. He spent another $1500 purchasing speakers
and a sub woofer because he likes the bass. My friend was telling
me how he got a great deal because he purchased several of the
components at once. He asserted that he "saved" several
hundred dollars on the equipment and that the entire system would
pay for itself since he would no longer incur the cost of seeing
theatrical releases. |
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Considering his assertions, my
curiosity got the best of my and I began crunching numbers. I
added his equipment costs and figured that his system cost $5500.00.
At $8.00 per movie, that means he would have to watch 688 films
on his home theater before it would pay for itself. Not bad,
you might think. He might see that many films in two years if
he watched one every day. Of course, this assumes he is watching
films that he would have seen in the theater but chose to view
them on his home theater instead or else he wouldn’t be
saving money. My friend found that even with his home theater,
he did not want to give up theatrical movies all together, so
maybe it would take a little bit longer for the system to pay
for itself.
What my friend never figured into his numbers was that he was
going to have to have DVD’s to watch on this new system.
At the purchase price for DVD’s, suddenly it would be cheaper
for him to watch a movie in the theater. His system could never
pay for itself. My friend decided that he would instead rent
the DVD’s from the local video store, where DVD’s rent
for about $4.00 each. If all of the DVD’s he watches are
rented, he only saves $4.00 over the price of watching the film
in a theater. This means that we have to do the math all over
again. Now for the system to pay for itself (dividing the $5500.00
system by the $4.00 savings), my friend would have to watch 1375
movies for the system to pay for itself. He would have to watch
at least one movie every day for close to four years before the
system pays for itself. Now my friend is serious about movies,
but lets face it, one movie every day is a lot of movies.
My friend never considered that after a couple of years, the
technology would be so much better that he would want a new one.
Sure his system was great, but look what they have now. Still,
the system has not paid for itself so he must press on. He never
considered that if he had simply paid the eight bucks to see
a theater movie every day that he would be $3000 ahead at this
point and not in hock for this stupid home theater. Heck he could
have gone to the theater AND bought popcorn every day!
What makes it worse is that my friend bought his system at one
of those electronics stores with the 1 year same as cash. How
can you beat that – no interest! What he didn’t know
was that if the balance isn’t paid off by the end of the
year, that the company charges all of the interest back to the
date of the purchase as if it was never "same as cash".
To add insult to injury, the credit company charges 29% interest
on purchases. That means that in addition to the $5500.00 my
friend paid, he also has to pay $1595 PER YEAR interest until
it is paid off. If he only pays the minimum payment of $150 per
month, it will take him 91 months (7 ½ years) to pay off
the system. The total cost of the system is then $13647 including
$8147 in interest. This means that including the $4.00 savings
per movie, he will have to watch 3412 movies before the system
pays for itself. That is a heck of a lot of movies. If my friend
watched a movie every day, it would take him more than nine years
for the system to pay for itself. In this case, my friend could
have paid full price to watch movies every day at the theater
for more than nine years. In fact, the system is not really paying
for itself if my friend would not otherwise have actually paid
the $8.00 every day for nine years to see that many films. It
also does not take into consideration that most people see at
least SOME movies in discount theaters. If my friend would have
seen a film in a discount theater, he would actually be spending
more for each movie he chose to view on his home theater.
What I have not mentioned here is that my friend works a job
that pays him $20,000 per year. If he pays cash for the system
(NOT using a credit card), he will have had to work over three
months for no other reason but to pay for his home theater. If
he uses a credit card, he will have had to work for more than
8 months to pay for the system. Now, I don’t know about
you, but if I could take 3-8 months off of work and still live
at the same standard of living, I would rather do that than go
to a job and work more for someone else so I can "save"
money purchasing a home theater that might not pay even for itself
for nine years.
I am not saying that home theaters are bad. I am simply saying
that you should consider carefully the cost of something before
you purchase it. I personally would not purchase such a system
when I can see a film in glorious Technicolor on the big screen
as it was meant to be seen (in 2.35:1 wide screen of course).
If you feel that it is worth it to you to spend the money on
such a system (for instance, if you are permanently confined
to bed), it is your prerogative to spend it on whatever you wish
to spend (keeping in mind that you must want it more than that
other thing you can't afford after you have bought it). So go
enjoy the movie! And say "Hi" to the ticket taker for
me! |
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Author: |
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Michael helps his wife Tawra
run the website www.notjustbeans.com . They paid off 20K in debt
in 5 years on an income of 22K a year. Tawra's frugal cookbook
Not Just Beans: 50 Years of Frugal Family Favorites. has over
540 recipes and 400 tips. For more tips and recipes visit our
website at www.notjustbeans.com.
Article Posted: 2003 |
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