My friend (no real name given to protect the victim) let’s call her Anne, recently purchased a new LG front loading washer and dryer after her 15-year-old washing machine failed. $2,092.07 later, Home Depot delivered and hauled off the old working dryer and broke washing machine. Prior to this purchase, I pled with Anne to buy a used washing machine off of Craigslist.org for $50 and list her broken one for $15. I have rinsed and repeated this tactic a few times with my rental properties with much success.
To make our math cleaner, let’s round down Anne’s purchase to $2000. At first, one might assume Anne simply paid $2000 after sales tax for her new washer/dryer combo, but her tax rate is 25% and her FICA Tax is 7.65 as she earns EARNED INCOME. Anne really paid $2969 ( $2000 / .6735 = $2969.56) for her new machines.
In contrast, If my washing machine failed, I would have had an outlay of $35 for a used washing machine (50 cost – $15 surplus for selling the broke one). As I earn PORTFOLIO and PASSIVE INCOME, my tax rate would only be 15% from dividends (Portfolio Income) I earn that are paid out quarterly. My true cost would be $41.17( $35 / .85 = $41.178) Let’s round-up to $42. This $2927 difference ($2969 – $42) is what is keeping most folks from early retirement/financial independence.
Now if you read/listen to what the marketing machine tells you, you will most likely follow the herd and purchase this new machine as it will save X amount of dollars in the long run as these newer models use less water, less electricity, less gremlins etc.. I call bullshit on the whole thing. The break even point on this is almost not even worth calculating. Why not take that $2927 savings and invest it to rid yourself of your cell phone bill for life.
Remember; pay off that debt, save and invest the rest, and join us on the other side and retire before you are dead.