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. 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.
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!
_______________________________________
Author:
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.
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